Tuesday, June 27, 2006

NAR: May Existing Home Sales

The National Association of Realtors May Existing Home Sales numbers are out. Total housing inventory levels rose 5.5 percent at the end of May to 3.604 million existing homes available for sale, from April 2006 when inventory stood at 3.415 million. In May, there was a 6.5-month supply of inventory at the current sales pace. Inventory has risen 41% from May 2005 when it stood at 2.556 million.

Total existing-home sales– including single-family, townhomes, condominiums and co-ops – eased 1.2 percent to a seasonally adjusted annual rate of 6.67 million units in May from a pace of 6.75 million in April, and were 6.6 percent below the 7.14 million-unit level in May
2005.

The national median existing-home price for all housing types was $230,000 in May, up 6.0 percent from May 2005 when the median was $217,000.

Single-family home sales slipped 1.5 percent to a seasonally adjusted annual rate of 5.82 million in May from 5.91 million in April, and were 6.6 percent below the 6.23 million-unit level in May 2005. The median existing single-family home price was $229,700 in May, up 6.4 percent from a year ago.

The National Association of Realtors used the term 'eases' to describe the month over month seasonally adjusted 1.2% drop in existing housing unit sales. Ok.

It's the Inventory Stupid! Nationally, inventory has increased by 41% from last May, and a full 5.5% from April 2006. In the bubble markets, the growth in inventory is a much greater percentage. Keep your eyes on that inventory!

27 comments:

  1. I find this recent news of the drastic increase in inventory to be somewhat surprising even with the overheated prices the past few years.

    The way I see it - demand for housing can be broken down into the following segments: (1) first-time home buyers, (2) long-term second-home investors (i.e. for renting or vacation), (3) short-term second-home investors (flippers), and (4) people selling a home to move into another. It would be really interesting - if such data were available - to know the changing demand for each of these segments. The heated market obviously attracted lots of the 2nd and 3rd types. But how has the current market conditions effected the 4th and 1st types? I would expect that fewer of the first-time home buyers in a market like DC would be hurrying into the market. And I would be even more curious to see how it effects the 4th type- are former owners now renting and expecting to see a market-correction? And of the total number of people buying housing in a "normal" (whatever that is) housing market, what percentage are those?

    If so many people are selling homes today, who are these people? Are they investors trying to get out? If so, then you would expect prices to eventually fall. If they are the 4th type, then the current inventory is harder to explain. Maybe they are selling their home first and then waiting to buy their next home. That could explain something of this increase in inventory.

    Anyway, it would be interesting to see this kind of detailed data if it is tracked. Does NAR or anyone else report that kind of data?

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  2. Isn't a 1.2% drop from April to May on an annualized basis more like a 12% drop? And a 5% increase from one month to the next in inventory more like a 60% annual rate of increase? If so, its not a soft landing by any degree.

    Guess the NAR took one from the credit card industry -- just quote the high annual rate in low sounding monthly increments......

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  3. The answer is yes and no. NAR keeps numbers for "second home buyers" - they were responsible for about a third of all transaction last year - an astounding number.

    It is virtually impossible to distinguish between groups (2) and (3) above. Any attempt to differentiate between a so-called "flipper" and a "long term investor" would be suspect anyway. I would also add that many "long term investors" bailed out of the stock markets at the beginning of this decade, which makes sense, really. Everyone holds while prices rise and thus considers himself of the "long term" variety, particularly if he believes prices will keep rising. When they fall, it's usually sayonnara to the asset in question. Yesterday's "long term investor" thus becomes today's "flipper."

    I suspect that is partly to blame for the inventory explosion. No one really knows what triggers "the end" of a speculative episode, except that as participants recognize a slowing of price appreciation, each, rational player moves to sell his asset, in order to "cash out at the top," if you will.

    What you end up with is lots and lots of inventory for sale at the same time - stocks, houses, tulips, makes no difference. The same principal applies. Prices fall, usually quite dramatically.

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  4. "Stupid" - a quote from the post, is describing a half-month greater than normal inventory as a definitive sign of a collasping bubble.

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  5. David - I'm glad to see you didn't shut down the site. This story hasn't played out and there is a lot more reporting to do as it unwinds.

    NOVA Fence Sitter

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  6. sc in dc
    Did you see David's post on the Bubblicous Fence on 10th Street. Last Sunday I drove up 14th Street and I was amazed on how many condos are being built there. Inventory seems to be going up up and away! I guess there will be alot of empty condos for years to come.

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  7. Here is an objective analysis of the housing data from MSN/CNBC

    http://news.moneycentral.msn.com/briefing/StockTicker.asp

    "With 30 minutes of the opening bell, May existing home sales checked in at a 6.67 mln annual rate, providing further confirmation that the housing market is proving reasonably resilient to rising mortgage rates. Be that as it may, the third decline in five months to the lowest levels since January has merely acted as a reminder that economic growth is slowing"

    Objective, unless you believe that Bill gates is really leaving Microsoft to help support the HOUSING INDUSTRIAL COMPLEX!!

    (You know, he does have a lot of money tied up in that 60,000 sf house of his. He's probably just another scared HomeDebtor.)

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  8. "(You know, he does have a lot of money tied up in that 60,000 sf house of his. He's probably just another scared HomeDebtor.) "

    What ?! Bill Gates can buy that place like we can buy a laptop.

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  9. 41% increase over what you claim is the height of the bubble? Looks like another sign that the landing will be soft. You lose again, bubbleheads.

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  10. I'm not familiar with how inventories vary, but I have to admit that 41% over doesn't seem all that high considering we are "landing". If it were 10-fold or so, than I would see a crises. I mean those inventories we had last year were so low that people were banging into each other at the open houses. When I sold the condo there were 11 offers (and it was only on the market 1 week!) I know the buyers at that period would have appreciated more inventory to choose from ... and 41% more inventory to choose from isn't all that much considering the 11 offers on my one condo last year.

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  11. I figured I throw this link from a USA Today article.

    http://www.usatoday.com/money/economy/housing/2006-06-26-affordable-homes-usat_x.htm

    The housing bubble increased the wealthy disparity between incomes in this country. The middle class can't afford urban living in most US cities. I don't think incentives have worked well with real estate developers. The developers prefer to target the upper-income market because they can get the greatest profitable return. I would have local governments pass laws FORCING developers to contribute 30-40 percent of their properties for middle and low income buyers. Any developer that doesn't want to ball, they will never get a permit to build in that city. Ouch, baby! The people have power. They should use local governments to pass strict zoning laws and calls for subsidization of housing paid for by real estate developers.

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  12. reasonably resilientJune 27, 2006 3:15 PM

    6 months inventory is the historical norm.

    To quote David again:

    Look at the "Inventory Stupid"!

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  13. I agree the inventory is the most important statistic here. It seems to have the best predictive power with respect to the future of home prices.

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  14. reasonably resilientJune 27, 2006 3:18 PM

    ihateyuppies,

    Your suggestion for zoning laws sounds like it would have the same impact as rent control, and be just as sucessful in providing housing.

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  15. People seem to be underplaying these inventory #s. Keep in mind two things:

    a) We have 6.5 mos of inventory with what are still very high sales volumes. If volumes decrease... watch out.

    b) These inventory numbers are increasing at a rapid pace, and as of yet, have not shown any sign of leveling off.

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  16. Mr. YuppieHater
    Like your ideal, doubt any politician will step up to the plate on that one. There are affordable housing programs for the poor, albeit it only provides for a small percentage. You guessed it, middle class provides the funding for these programs.

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  17. ihateyuppies,

    Arlington tried to force more affordable units out of developers, they were sued by the developers. i'm pretty sure the county lost. this all happened about 2 or 3 years ago.

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  18. Not to excuse the builders here, but it's just as much, if not moreso, the fault of zoning boards, regulations, and NIMBYs that we don't have nearly enough market-built affordable housing. The battle against greater density and height is constantly making it unprofitable to build and provide enough housing to satisfy demand at lower and median income levels.

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  19. I believe there is a Supreme Court opinion on the issue of counties ordering developers to set aside certain numbers of units for low-income residents. From what I remember, the Supremes said municipalities can't make permits contingent on such requirements because there is a takings issue. This is all off the top of my head, but I think it's accurate.

    And Bill, it's pretty obnoxious to be posting links to your blog on here after David has asked you to stop. What you're doing on here is no different than what spammers do on message boards.

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  20. Bill,

    You are welcome to start you own housing bubble Blog. I will support it as long as you don't use the term 'bubble meter' in the name of your blog. It confuses people who are in the bubble sphere. Thanks. If you continue to post with the term 'bubble meter' in the name of your blog it WILL be DELETED.

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  21. haudidoody-

    I totally disagree. Those regulations often make sure that existing homes remain good places to live. As a renter now, if I ever become an owner, it would be in a place with plenty of "NIMBY" rules as you say.

    Anyway, there were fewer houses and just as many NIMBY rules five years ago, and prices were far closer to median salaries back then.

    everyone-

    In the DC area, the Washington Times has a little free real estate guide that I think they put out every week. The one this week shows a dramatic difference between inventories and sales in May 2006. You can probably pick it p for free at your grocery store. I got it in the mail (unsolicited- I don't subscribe to the Times) today.

    A Redskins fan

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  22. reasonably resilientJune 27, 2006 4:59 PM

    Redskins Fan,

    Zoning, Nimby, etc all have the intended purpose you state, but the actual effect is like using a baseball bat to play the violin.

    But you're wrong about the number and effect of those rules. Countless studies show home prices increasing with land use controls. In other words there is a direct correlation between the level of control and the cost of housing.

    It does not "have" to be that way, and some people use Portland Oregon as an example, but the empircal evidence supports the claim.

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  23. ihateyuppies:
    "They should use local governments to pass strict zoning laws and calls for subsidization of housing paid for by real estate developers."

    This "ain't" gonna happan, 'cause it "can't" happen. Nothing ever truly gets paid for by the producer of a good. All costs get expensed into the final product or shifted to someone else. For good or for bad, that is how the world works. Reasonably resilient is correct when he compares its prospects of working to rent controls. The last time I looked, I didn't see any poor folks benefiting from rent controls ... Only otherwise wealthy people living off the backs of the new arrivals to the building. (A law of economics, ALL costs get shifted/paid for by the people receiving the services.) A better tactic to take would be to address the issues that are causing this country to divide into the haves and the have-nots. Prior to the Reagan years, we had a social compact in place in this country instituted by FDR that had changed this country from where we heading now to where we were when we won WWII, put men on the moon, and made the Soviet Union crumble. We had a country were what people were paid for their services was more based on merit than on who had the biggest arms with which to wrestle away the common earnings of many. It was a time when CEOs who didn't deliver didn't get billion dollar going away presents, and workers could give all their loyalty to a company knowing that via a defined benefit pension that the company would take care of THEM into their old age until their deaths. It was a time where people received a fair share of what they contributed to producing. We don't have that anymore. We have moved to a "survival of the fittest" operating mode. And that is not good. Look at France under Louis XVI, look at Russia under Nicolas II. Under Bush II, we are travelling faster and faster to the divided societies that finally brought down all order. So, it's not a matter of forcing developers to produce housing for nothing ... which is inherently wrong and otherwise known as slave labor, but rather about forcing the development companies and all others in this country to more fairly share the earnings of their shared production. Don't count on some dictorial government to force producers to give you something for nothing, but rather insist that governments reinstitute the laws we had before that ensured you were being more fairly paid for what you had helped to make. Ensist that government make everyone play by the rules regardless of how strong they are and how tempting it might be to circumvent the rules. 'Course our own government leaders would have to set the course for that ... perhaps playing by the rules and respecting the constitution and its limits on their authority would be the best place to start. This IS democracy ... what you were advocating is communism. One works very well, the other doesn't.

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  24. You have the term "bubble meter" trademarked? copyright protected? can you pursue legal action to make me stop - as you have demanded of me in two private emails?

    This all sounds mean spirited to me, Dave. Grow up, please. We both have the same message, after all.

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  25. David I know you work hard but I insist that if you are going to scold me you scold Lance, too.

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  26. bill,

    "You have the term "bubble meter" trademarked? copyright protected? can you pursue legal action to make me stop - as you have demanded of me in two private emails?"

    No.

    "This all sounds mean spirited to me, Dave. Grow up, please. We both have the same message, after all. "

    It is NOT mean spirited. I think your blog has potential. By having two housing bubble blog in the DC area called 'Bubble Meter' it adds confusion to the BubbleSphere. Please change your blog name. If you change it, I will support you.

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  27. Its hard to keep up with all of the comments.

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