Tuesday, April 25, 2006

The Big News in Existing Home Sales Report is the Condo & Coop Market

The big news in the NAR Existing Home Sales Report is the condominium and cooperative sales.

Nationally, condo & coop inventory increased to 494,000 in March 06 from 425,000 in February 06 which represents a 16.2% increase in inventory in one month. Year over Year the inventory increased from 267,000 units to 494,000 which represents a dramatic 85% increase.

There is now a 6.9 month supply of condo /coop inventory. Sales fell 2% from March 2005.

The median sales price for condos in the West actually fell 3.7% (not seasonally adjusted) from March 2005. In March 2005 it was 290.4K which has since fallen to 279.6K.

Overall, the condo & coop market is much more vulnerable then the single family housing market. Much more inventory is coming. Median sales price will decline. The construction crane is now the unofficial bird in many states.

29 comments:

  1. Cluck-cluck (you huge chicken). So it seems that maybe this is more complicated than just running around and yelling "the sky is falling!"

    I hope you get the joke that at the first sign of information that says "no housing bubble thank you very much", you've just changed it to "there's a condo/coop bubble!" and you can explain sotto voce that's what you meant all along.

    It would have been a lot better if you had stuck to your guns and said "this is a temporary blip and I stand by my predictions." But instead we see the waver and the flip-flop. Your blog is toast pal.

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  2. What on earth are you talking about?

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  3. This trend is definitely noticeable in DC. Click below to see evidence:

    http://dcbubble.blogspot.com/2006/04/incredible-bifurcating-market-condo.html

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  4. "It would have been a lot better if you had stuck to your guns and said "this is a temporary blip and I stand by my predictions." But instead we see the waver and the flip-flop."


    I stand by my original predictions. All I am pointing out is that the condo market is more vulnerable and declining faster the single family housing.

    "Your blog is toast pal."

    H*ll no. It is more popular then ever.

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  5. wvu_84 aka 80s_gradApril 25, 2006 5:02 PM

    Anonymous
    Cluck-cluck (you huge chicken). So it seems that maybe this is more complicated than just running around and yelling "the sky is falling!"

    Maybe nationwide the sky is not falling but certain areas like DC metro are in a world of hurt when it comes to selling a house.

    Several posts on this blogsite have shown price declines and increases in inventory (both new and otherwise). I can't come to any other conclusion than the bubble is either bursting or deflating. I know it's better in Raleigh, NC and I'm sure it's better in many other places.

    Several years ago we had the "dot.com" bust but other industries like biomedical were chugging along just fine.

    Also I'm sure that Mr. Bubblemeter is not stating the sky is falling on the entire planet.

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  6. There's a remarkably similar anonymous troll posting on one or two of the other DC-area bubble blogs. I won't venture to speculate on the troll's motivation; I'm inclined to think this is just a side-effect of higher bubble-blog visibility.

    The usual anti-troll advice applies, I think.

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  7. David- this is good work. We dont generally track condos. Maybe we should.

    -X

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  8. I'm renting a condo, having sold one in Florida. Since last summer, condo sale prices have declined much more rapidly than house prices. In some cases, they seem to be almost 20% below the peak. Price cuts are rampant and sales are very few and far between.

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  9. Keep up the great work David. You have an excellent blog.

    A Redskins fan

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  10. Thanks for all the words of support the readers when some anon poster attacks my blog. I am not thin skinned. I can take the attack.

    Nevertheless, I truly appreciate all the words of encouragement.

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  11. New to the blog, but thanks for the great information!!!

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  12. David,

    Really like your blog and I'm happy you got a mention in the Post last week.

    That anon poster doesn't seem to realize that condos/coops are housing too.

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  13. Trolls make a blog a bit more interesting. I appreciate the trolls for entertainment and also for voicing popular opinion.

    Since coming to these blogs I've bought a bunch of books on manias and RE and I am learning a great deal about the economy in general.

    It doesn't really matter who is right or wrong, it is really a search for truth, and in and of itself it is worthy.

    Thanks a bunch for running this blog!

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  14. I am new to this blog too and appreciate the data on condos etc. However, if as your troll(?) suggests you have been in "the housing market is going to crash therefore there will be a recession" school then, with respect, you ARE almost certainly wrong. In the same way that the dot com bubble did not affect the wider market - the unweighted S&P ROSE 10% in 2000 and 4% in 2001 - the bursting of the condo bubble will hit certain sectors very hard and others barely at all. Do not confuse cause and effect. In the UK, Australia or even 1989 Japan, sharp increases in short rates brought down leveraged bubbles and at the same time seriously hit the disposable income of the whole home owning population on floating rate mortgages. Despite the hype from the "US consumer is going to collapse THIS year (dammit)" school of bond economists, in excess of 80% of US household debt is fixed rate.

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  15. Mark T: Do you mean household debt (meaning the total debt in a household) or mortgage debt?

    If the former, then with respect I don't see how that can be true; credit-card debt isn't fixed-rate. ARMs obviously aren't, and I believe a sizable proportion of HELOCs are adjustable-rate also. Car loans I don't know about (don't drive). If I'm wrong, please educate me.

    Mortgage debt -- I haven't seen numbers about how much of this is fixed-rate and how much adjustable. The other joker in the pack either way, though, is the sheer *amount* of mortgage debt house buyers have taken on in the last three years. Even at a fixed rate, there is some (and I think credible) doubt that all of them can reliably keep up with payments -- and the increasing foreclosure rate is evidence that some can't.

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  16. Not only is this a housing a bubble. There is a credit bubble.

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  17. First, MarkT: Please continue to disagree and argue. Frank discussion is the good stuff. :-)

    Next, Tidbit: Most car loans are fixed. They're usually 3-5 years anyway.

    Next, MarkT: You're right that this is housing thing, but with all these people having risky loans, AND their values falling under them, AND supply going through the roof, you're going to get a lot more loan defaults. It's possible that could really hurt the financial institutions involved, and that'd be bad for everyone.

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  18. To first poster ANON: It sounds like you are sitting in some RE office with nothing better to do then blame the messenger? Why don't you quit wasting your time on blogs and start dialing for dollars?

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  19. Why are you all suprised that your blog, which openly hopes that homeowners (people with jobs and families) will lose their shirts in an unprecedented market crash, gets comments from people who point out how foolish you are acting?

    I hope your landlord steals your security deposit, your building goes condo, and you have to move to Prince George's County because you waited too long to buy someplace nice.

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  20. Does anyone know what the average condo/coop inventory has been, say over the last 10 years? It's been my understanding that inventories have been very low for the last few years. This might be more of a return to normal than a glut.

    Rebar

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  21. To Mark T: I see that you are new to this blog. Many of your questions have been answered on this blog and other blogs in this debate. I would like to give a brief overview of the discussion of the Housing Market that has been occuring on Housing Bubble Blogs during the past year and a half.

    The discussion first started with a few people (Ben Jones, www.thehousingbubbleblog.com, being one of the first that I remember. I think he started around January 2005, but didn't really get rolling until March 2005 or so.) starting to question the rapid price increases and high prices of housing in the US. At this point the questions were "Is there a bubble?" and "How can we show with real data that there is a bubble?" Slowly bloggers compiled information and facts to support their case that there is a housing bubble. This led to a discussion about the psycological aspects of the housing market. It was easily shown that the high housing prices were(and are) not justified by the underlying fundamentals. (Compare housing prices to wages, rents, costs, etc. and you can only conclude that the prices for housing are WAY above the mean.) It was generally agreed that psychology was the driving factor for the housing bubble and price increases, with general agreement that there were other dynamics involved as well(flippers - symtom or cause?, the Fed - cause?, lower interest rates - Did they cause the price rise as a result of lower monthly payments?) There were(are) plenty of discussions around all these topics and more.

    Here are some quick answers to the above. Flippers - symtom, but about to get really screwed as house prices drop or stagnate. The Fed (AG) - CAUSE. By lowering the FedFundsRate to 1% to stimulate the economy the Fed allowed the Housing Bubble to expand and get out of control in the form of a credit bubble. Lower interest rates - partial cause. I think that the general idea is that, of course, lower interest rates cause price increases, but the drop in rates over the last 6 years or so would only justify a 15-20% price increase, not 100% (or 200% for condos/coops in DC!)

    That leaves us with a classic psychological bubble. All I have to say at this point is that you should find a good article on the Tulip Bubble. As you read it try to compare it to this bubble.

    After most of us on the bubble blogs had decided and proven to our satisfaction that we were definately dealing with a bubble there were only two major questions left to answer: How would this housing bubble play out? and What will the effects of this bubble bursting be on the economy?

    Let's start with the first question: How would (will) this housing bubble play out?

    At first people were just trying to prove that there was a housing bubble. Finally, around Jan or Feb 2006 (just a month or two ago), there was general agreement (I mean in the general population, most bubble bloggers knew long before this) that there was (is) a housing bubble. (I could go into detail, but suffice it to say that when I go to cocktail parties now people are not talking about how much money they are making on there houses anymore.) Since the housing bubble bloggers have been investigating and reporting on this issue for over a year they are way ahead of the curve. Basically, while I admit that there were (are) predictions all over the place, the general concensus has become that housing prices will revert to the mean. This means that we are either in store for a 30-40% price decline or a 15 year stall in price increases to allow inflation to take care of the imbalance. The concensus was to agree on something in between. We will probably see a 15% price decline that then stagnates for about 5-8 years. (My personal view is more dramatic, expecially for condos. I think that condos in the DC market will see a 50% price decline followed by stagnation for 5-10 years.) There is a lot of information out there on this and predicting the future is always very difficult, but I think that the bloggers have done a really good job at bringing real information to the public that the newspapers are only just now starting to run stories about. A couple other facts about housing bubbles and how they work that we have learned: The Housing Market doesn't act like the Stock Market. Everything happens much slower and more drawn out. Even many bubble bloggers don't always understand this. It will take years for the bubble to unwind. When someone says we will see a 30% price decline in house prices they usually don't say what timeframe. Many people assume that the price declines will occur overnight! Not so, usually housing price declines take a few years to reach bottom. (Did you know that the median house price in Northern Virginia since July/August last year is down 8%?) This discussion is ongoing and will continue to be ongoing. If you want to be informed on what will happen to the housing market you really should keep an open mind and stay tuned to the housing bubble blogs. They have been providing very good information from all kinds of different sources (newspapers, magazines, economists, anecdotal, NAR, IMF, you name it) and, more importantly, have provided a strategic overview of what is happening in the housing market to guide you.


    What will the effects of this bubble bursting be on the economy?

    This is where you come in. Here is your comment:

    "However, if as your troll(?) suggests you have been in "the housing market is going to crash therefore there will be a recession" school then, with respect, you ARE almost certainly wrong. In the same way that the dot com bubble did not affect the wider market - the unweighted S&P ROSE 10% in 2000 and 4% in 2001 - the bursting of the condo bubble will hit certain sectors very hard and others barely at all. Do not confuse cause and effect. In the UK, Australia or even 1989 Japan, sharp increases in short rates brought down leveraged bubbles and at the same time seriously hit the disposable income of the whole home owning population on floating rate mortgages."

    If you were turning in this paper to me as an economics paper I would have to give you an F (or E if you live in MD). And this comment caused me to write this long response so we can get you caught up with all the rest of us respected bubble believing bitter renters that are very, very, very worried about the effects a bursting bubble will have on the US economy. Here goes, a brief summary of what we know about the effects on the US economy of a bursting housing bubble. Let me start with the recession idea. We have agreed that the bursting bubble will cause economic hardship for at least some in our economy. As you say, some sectors will be harder hit then others. Obviously the construction and RE industries will be hit hard. We all agree on that. What about the mortgage industry and banking industry? While not 100% agreement, we generally agree that these industries will be hurt really bad. Then comes a discussion of what you are shrilly arguing against. (RE bubble burst causing recession: "you ARE almost certainly wrong.") Will the bursting bubble spread from these sectors to the general economy? The answer is CERTAINLY yes! There are plenty of studies out there that show that the housing market has a much bigger effect on the economy then the stock market. Generally the number is a .4 correlation for the stock market vs. a .8 correlation for the housing market. (It IS cause and effect! What do you know?) Next I will throw in your quote, "In the UK, Australia or even 1989 Japan, sharp increases in short rates brought down leveraged bubbles and at the same time seriously hit the disposable income of the whole home owning population on floating rate mortgages." EXACTLY. Did you notice the fed has raised the short rates from 1% to 4.75% and the leverage bubble is popping (this ia another area of discussion about the housing bubble. Many believe that the real issue is the underlying leverage bubble. See www.anotherf&$kedborrower.com) and the disposable income (no more HELOCS!) of the whole home owning population is getting hit because of the explosion in floating rate mortgages($1.4 trillion adjusting in the next 2 years!) All this leads directly to consumption. Which leads to a possible recession. To finish up here let me just say that David (and many other bloggers) has been looking at this issue for many months and can present good detailed information and reports. In particular see the IMF report about how housing bubbles effect the economy - according to that study the average housing bubble bursting caused a .8% reduction in the entire economy! And most of us can show with documented proof ath this is the largest housing bubble in the US(and probably the world) since the 1920's. It is much bigger then most housing bubbles in the past. That is why we are worried. That is why we are discussing this.

    There are, of course, many other great discussions and debates on housing bubble blogs (Will the banking industry crash? Are you a bitter renter or an f'd borrower? Will the Fed raise rates past 5%? (david is predicting 5.25%. I think 5%.) What will happen to property taxes? How many months behind the actual price is Zillow.com? Leading indicators vs. lagging indicators? David Lereah - scumbag or corporate tool? Helicopter Ben - He will save the banks in the coming bust, right?etc, etc, etc.) Please keep reading them because I think that you could really learn a lot about how our economy works and you could become a valuable contributor to these debates and discussions.

    Peace

    Eric in DC

    PS: An econ class or two wouldn't hurt.

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  22. Dear Anon,

    We are sickened that many people bought into the hype. We don't wish pain and suffering on anyone. We did not pass the bankruptcy bill. We did not force anyone to take on exotic loans that will bankrupt them. We did not sell them an over priced house that they can't afford. David is bring a very good message to people that are thinking about buying. He is telling them to think about it. Look what could happen to you, he is saying. Have you posted to the Washington Post with the same ideas regarding their article on Saturday about speculators in DC being SOL?

    And your mean spirited comments are not welcome here.

    Eric in DC

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  23. God, does anyone read anything that long written in a blog comment? I bought my condo in G'town for 360K in May 1999 for $200 sqft. A large one but not as nice sold in January for a million. I have a 30 year, 6.125 fixed rate mortgage on it, it rents now for a nice cashflow profit, and I get a nice tax loss each year to save me even more money. Now, if property values are going to sit still for five years then I might sell it if I decide I would rather be all in equities, but I like being diversified. The BH philosophy misses the point that few people will have to sell, despite suggestions to the contrary. What any property owner looks at is a longer term. I can't really complain that if I didn't get a million dollars this summer, six months after someone else did get it, that I "lost" that money. I didn't want to sell then and still don't, so what bubble? Multiply this by many millions who aren't selling, and so much for the end of the world. But it is more fun to read those who think the end is nigh.

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  24. i find it ironic that the first poster is calling the author of the blog a chicken when, he/she posted anonymously.

    it would have been a lot better if you hadn't posted anonymously, it would of at least not made you look like and asshat

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  25. Anon: You should take the time to read the comment. (I'm assuming that you didn't read it since you didn't even take the opportunity to discuss the issues that you brought up and I responded to.) You might just learn something. I learned something from your comments.

    Peace

    Eric in DC

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  26. I also agree with THATOTHERGUY that anon posters are probably 99% trolls. Either that or they don't like to stand up for what they think and back it up with facts.

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  27. eric in dc's momApril 26, 2006 3:04 PM

    Son, stop playing in the basement and get out and get a job. I'm sorry you never got around to buying your own place during the housing boom. Please stop complaining about it because it is tiresome. And start doing your own laundry!

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  28. "Son, stop playing in the basement and get out and get a job. I'm sorry you never got around to buying your own place during the housing boom. Please stop complaining about it because it is tiresome. And start doing your own laundry! "

    pwn3d

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  29. Bothering to register and log in is even more exceptionally boring than people complaining about anonymous postings. I mean, does logging in as crackerjoe or PO'drenter or cantkeepajob really provide transparency?

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