Monday, September 25, 2006

National Median Sales Price Falls Year over Year

The National Association of Realtor's released its national existing home sales number for August 2006.

Sales of previously owned homes in the U.S. fell in August to the lowest since early 2004, and prices fell from year-ago levels for the first time since 1995.

Purchases declined 0.5 percent last month to an annual rate of 6.3 million, from 6.33 million in July, the National Association of Realtors said today in Washington. Sales fell 12.6 percent compared with a year earlier.

The median sales price fell 1.7 percent to $225,000 from a year earlier, the first drop since April 1995, David Lereah, chief economist for the Realtors, said at a briefing. Federal Reserve policy makers, who last week held interest rates steady for a second month, expect housing will cool gradually to slow the economy and help curb inflation.

The supply of homes for sale increased to 3.918 million, a 7.5 months supply that was the highest since April 1993, up from 7.3 months at the end of July. (Bloomberg)

David 'soft landing' Lereah, stated that "We've been anticipating a price correction and now it's here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.'' Think Again!

NAR: Sales Down, Prices Down, Inventory Up (Calculated Risk)
FLASH: Used home sales fall again, bogus price number shows first year-over-year price decline since 1995, Lereah predicts market has hit bottom (Housing Panic)


  1. The window of opportunity for those who have been sitting on the sidelines waiting to purchase is quickly slipping away, however I suspect most bubbleheads will miss it. I just hope they are on here a year from now explaining why they are still "waiting it out." The justifications will be interesting to hear.

  2. David,

    You previously would post information on particular properties that you seemed to think were particularly overpiced. I am wondering now that prices are starting to come down if you are starting to see some properties that may actually have reaonable prices. Thanks.

  3. Lereah has no soul. To hear him tell it he anticipated the decline and sees it as healthy. To be fair I haven't read everything he's said, but clearly his message has been that there is no bubble, prices will climb, go baby go.

    Lance, clearly this is a better time to buy than a few months ago. I'm not smart enough to call a bottom prospectively. I don't know anyone who is consistently. Better lucky than smart.

    Stick to conventional mortages, buy less than the bankers say you can 'afford', and stay in the place for a long time and all will be well.

  4. Lance - based on inventory vs. recent sales figures, I don't think anyone needs to be in a panic to jump into the market right now. There is still more supply than demand at current prices, which indicates more price 'softening' - in the words of the industry.

    At the very least, prices aren't going to rise quickly. They may even continue to fall or remain even.

    No one except realtors, builders, mortgage lenders, etc, should feel the need to hurry at all.

    Curiously, what evidence can you offer of this 'closing window' of opportunity?

    sc in dc

  5. why is it a good time to buy houses when inventory is increasing and prices are dropping..and all I read about is overextended homeowners..common sense tells me if I am patient I can get a better deal...the downturn is just starting....but I am not a RE maybe I am wrong...

  6. David Lereah:

    4 weeks ago - 'home prices won't fall. now is a great time to buy before rates go up.'

    2 weeks ago (after seeing the early August numbers) - 'uh, prices may dip, but just for a couple of months.'

    today - 'we've been anticipating a price correction all along. but don't worry, prices are about to skyrocket. better get in quick before you get priced out forever.'

  7. Lance,
    many of us hope you are here in a year also. I cant wait to hear your justifications on why houses have dropped 20+%, maybe you will resort back to the bubble heads caused the housing crash by talking about it.... Ssssshhhhh, bubbleheads, dont talk about it.... its fragile.....
    Its amazing to me that you have been wrong so many times this year yet still wont accept the fact that you have been wrong. You definitely said housing prices in dc proper wont drop. Wrong,
    -8.7%. Unbelievable...

  8. I better run and buy before I am priced out forever.

  9. Gee- a 1.7% drop- and the mice in their million hordes will flock to buy real estate still incredibly overpriced.

    Lereah is indeed a liar and crook- takes lessons from Bush, Cheney, Rumsfeld- who like Lereah have made the world a more dangerous place to live.

  10. Hit Bottom!

    Keep Dream'in Lereah!

    What excuse will you have in March when the housing market keeps tanking?

  11. "We think the housing market has now hit bottom."

    He did it again.
    I thought he was beginning to see the reality in the last few months. But no.

    When prices were rising last year, the mantra was buy before you get priced out.

    Now, when they are falling he says it is a good time to buy.

    No matter what, it is always a good time to buy a home, according to Liareah.

    Why? because thatz the only way he can make money.

  12. August existing home sales fall 0.5 pct

    Another gem from Liareah...

    "That is good news for housing," he said. "The health of the housing sector is in transactions, is home sales, not home prices."

  13. Seriously. As stated before - the NAR presentation showed that recent RE downturns lasted from 7-9 years peak to peak. And there are many reasons why this one should/would be worse than others. With that in mind (and considering that is was a NAR presentation that posted this info) how can Learah actually preach this "we are at bottom now" BS? What evidence does he have to back that up?

    IMO - we will see a dead-cat bounce early next year and everyone will think it is over. (Lance will do a cheerleader dance). Then prices will go lower than folks expect.

  14. Lance, You are right...I just drove
    past a house that has been for sale
    for about a year...Since this news came out, there are cars parked everywhere around it and I heard they have started a bidding war.
    Gosh...If I had just listened to you and David L. I might have my dream home...Now Im priced out forever.

  15. Just build a new house, there's plenty of lumber piling up...

    As housing industry cuts back, Minnesota loggers feel pain

    "Now some loggers are at the end of a domino chain in which mill owners are putting off deliveries because of the slowdown in home building. That has left some cash-strapped loggers skipping equipment loan payments to their bankers, scuttling their pension plans or simply walking away from the business."

  16. I wonder how much prices REALLY fell when you factor out all the incentives sellers have given buyers this year.

  17. Any idea when the DC/NoVa sales, price, inventory numbers will be realeased for August?

    I get a newsletter from a DC-based realtor & they listed YoY price increases for many local (DC) areas, for most housing types except DC condos (i.e. Montgomery county condos & SFHs, Alexandria condos & SFHs, and DC SFHs all had YoY price increases).

    Not clear what the source is though.

    The link is here:

  18. Anectdotal: In my little neighborhood on capital hill, there are a few reduced signs (usually in front of unrenovated houses). But I've also noticed more than a few houses that have sold for $600-700k in a matter of a week or two.

    I know everyone thinks their situation is unique, but I look at the regional housing market, and then look at the District, and think: Why is it that in Georgetown, 5 years ago a 1500sq ft town-house would fetch $800k, but in NE, the same house would sell for $100k? And now, the same rowhouse, say one that's across the street from Eastern Market, is $500k, and that's supposed to be hugely overinflated...

    Seems like making sense of these things is very complicated

  19. Oh My....Home prices can fall!

    what will the NAR & Lereah say next.

  20. You know, barbara corcoran was on television last weekend talking about the real estate market. She is a recently retired, big name New york real estate agent tycoon type.

    She said things are not good right now but that the truth of today's market will not show up in the sales data for at least another three months. It is not over.

  21. For anyone that's interested in NOVA, check out this site:

    In August I looked through the July numbers and things were down 4-8% in the inner suburbs and zipcodes YOY.

    Checking the August numbers indicates drops of 12-18% year over year.

    My take on this? July numbers indicated a trend downward before people started accepting that there could be losses. Ie., the herd mentality was, pricing may stagnate or dip, maybe we'll see erosion through inflation but not in nominal dollars. We'll level off.

    Now we're seeing hard evidence of erosion in nominal prices that can't be denied. Once that sinks into the herd mentality, expectations of lower prices will gain strength and the market will weaken further.

    My $0.02.

  22. “‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”


    Can you believe this guy?

    The internet proves him wrong. He just flip flopped recently. Before that it was to the moon!

  23. Lance,

    the only one that won't be here a year from now will be you and if you are i will like to hear your spin on why prices are STILL falling!!

    this is just the BEGINING and i have the last time this happened as a road map to follow.

    you just have cheerleading and hope as i have past experience and that tells me a 40% decline in prices is in the offing. and BTW the last time the correction came it was during a DECREASING interest rate environment and now there is not much wiggle room for interest rates to drop.....not even close to last time and that DIDN'T HELP.

    one thing is certain, time will tell.

  24. prices are going to go down 30-40% before we can even start discussing a bottom. Sir John Templeton suggested a 50% drop! However, markets do not go down without counter trend rallies. A stabiiization period is possible before the next wave down.

  25. If the industry, media, etc., are just now picking up on this, odds are they'll be just as slow to identify a growing housing market. Considering the relatively long time it takes to find and close in a property, market-timing is virtually an impossibility. I won't suggest now is the best time to buy (if there is a better time to buy than not), but the investor's addage of buy when everyone is selling, and sell when everyone is buying, can anyone really suggest "when" the market is prime for purchase versus "what's best for you"?

    Once we see reports that the market is going up, it will be too late to jump in -- just as everyone who is trying to sell now is paying the price for waiting too long.

  26. We are experiencing a normal cycle in real estate. Nothing more, nothing less. Personally, I hope rates decrease because I see lots of opportunity on the horizon. Most will be afraid to buy for fear of further price declines. There will be some awesome bargains for those willing and able to pull the trigger.

    btw- I've been banned from Ben's blog. Insulted too many natives. They can wish the worst on people and it's ok, but disparage them and you are history.

  27. RE The Economist:

    Yeah, I was looking at a house on line in Leesburg, VA - A split level with a pool for $479k about 8 months ago. I was thinking that I could get it for $450k if I wanted it. Decided to wait because of all the signs pointing to a decline. Just went on and looked - it is listed for $400k. now I am thinking I can get it for $350k if I want it, but as you guessed - I don't want it

  28. skytrekker,

    Don't leave out Bill from you list of undesirables. Did you see his interview? He wanted to take out UBL, he tried, but the bad old Generals and CIA wouldn't let him. Uh-hu. And he probably believes it himself. Sorry for the political divergence.

    Lereah is the lowest of the low, way under Bill and George. Thank heaven he isn't in charge of anything important.

    Oh, some private research group reports that home prices are 20-30% off their peaks in the hottest markets and this will be reflected in the numbers over the next six months.

    Bargains ahead, steady as she goes!

  29. Anyone who believes prices will decline 40% is nlot being realistic. That won't happen. A 10-15% reduction is likely, in the more overheated areas maybe 20%. That's still a large drop by almost anyone's standard, but in the DC area there's still a great deal of pent up demand. People (me included) are waiting to see what kind of deal we can make.

    I go out and look at houses every couple of weekends and I feel prices are still out of line quite a bit, but 40% is asking a bit much. I'd love to see it though!

  30. "That is good news for housing," he said. "The health of the housing sector is in transactions, is home sales, not home prices."

    He means the health of his bank account.

  31. va_investor says

    "We are experiencing a normal cycle in real estate. Nothing more, nothing less."

    First - There are many reasons why this particular cycle is not 'normal'. Mainly - the huge expansion of credit that accompanied it. This was hardly a normal uptick in the RE ebb and flow.

    Second - okay, fine. A 'normal' RE downturn takes 7-9 years play out, i.e., to get back to original peak prices.

    The truly awesome deals are not here yet.

  32. Anon 1:14,

    Take a look at the link I posted earlier.


    Prices are off as high as 17% in some of the inner suburbs YOY. Throw in inflation and real prices are down north of 20% from last year. And the numbers indicating a negative trend in prices are less than 2 months old.

    Let this sink into the herd mentality and prices could easily sink another 20 percent...

    I'm one of those on the sidelines. I've looked at the long term trend line. Some places were upwards of 50% over trend (and I was allowing for yearly inflationary + appreciation growth). So, I'll consider moving back in when we get closer to reapproaching this trend line. But I still think there's a way to go to the downside.

    My $0.02.

  33. Robert Schiller...40% decline
    Sir John Templeton...50% decline
    Bob Prechter...90% decline (yikes)

    just a couple of predictions....if i would have said in 1999 that the nasdaq would decline to the area of 1000 you would have told me that i needed a shrink.....this magnitude of decline can (and i think will happen)

  34. "Anyone who believes prices will decline 40% is nlot being realistic."

    Real or nominal declines? Over what time period? In what market?

    My prediction: in bubble markets over the next 5 years, nominal prices will decline 15-20%; real prices (prices adjusted for inflation) will decline 30-40%.

  35. The median for the country may only be a drop of only 1.7%, but you can be sure that the many of the old hotter markets are well above the average for the amount that they lost.

  36. "The truly awesome deals are not here yet"

    And what would be considered a deal? 1997, 2000, 2002, 2004 prices? What guage does one use at the time of purchase, e.g., do you compare present overall economic conditions to a prior time period?

    The point being, while some hope for a return to year 2000 prices, if things went one way it could be much worse.

  37. "but 40% is asking a bit much"

    Why is it asking to much? Did it not go up at least that much in 4-5 years? Is the boom not over? Are not huge amounts of ARM's resetting next year? Is not our government cutting back on spending? Are companies not cutting back?

  38. Wow,

    Its really interesting to see people think this will be a normal cycle or a temporary decline in prices. You cannot look at the Florida, Southern California, NoVA, Pheonix, or Vegas inventories and really believe that, can you? And while building is slowing, its still far above the absorption rate! Look at the non-dimensionalized fundamentals.

    Its the absolute wrong time of year to have this high of inventory on the MLS. Will homes be pulled off the market until spring? Yes. But those homes will be back. Where I want to buy, there are 500% of the homes on the market as there were ~15 months ago. Yet I've seen dozens of homes pulled off the market until spring... Hmmm... And you wouldn't believe the number of homes pulled off the market for refirbishment that will be back on the market for spring/next summer. Oh, now is not the time to buy. Not yet.

    Answer the question: What happens when people are priced out of the market? Easy, Adam Smith's "invisible hand" steps in and corrects: changed immigration (e.g., people are moving out of bubble markets, maybe not DC, but Florida, California, etc.) Or a quick drop in prices. To buy now is to buy on the way down.

    One day I will buy.
    But 2007 is going to be the ugliest real estate market in the US since Florida 1926.

    And don't worry, no breadlines, unemployment won't get *that* bad, etc. But you will see people moving to areas they can afford.

    Once the inventory breaks the magical 8.7 months nationally... you'll see the decline.

    Of side note, I have been talking with my dad about the upcoming real estate induced recession. He and his investment club are excited by it! Why? It will create a drop in the dollar, leading us back to being an exporter. Alas, they're looking at a 7 year time frame for the uptick. :(

    I have faith the US economy will preservere. How? I don't know, but there are many options: ethanol/bio diesel (reduced cost of imports), medicines (who else introduces new ones, it doesn't seem to happen elsewhere...), micro-jets (unlikely, but I can wish, all but two US made), or maybe a *huge* infrastructure building program to employ those ex-home building workers (freeways/tunnels, subways/streetcars, airports, etc.) :)

    I do feel for people who bought into new developments that are only partially sold. :( Those run a risk of becoming "instant slums" a la south central LA. It always amazed me that gang bangers lived in victorians with mahogany stair cases, italian marble fireplaces, exquizate wood-worked kitchens, etc. But those were the homes that sat empty for too long...


  39. It is important to view this from a realtor's perspective. A sale on a rising assets is a sale, a sale on a declining asset is a sale, both generate commissions and feed the NAR.

    Market booms increase sales, market busts increase sales.

    So it's win-win.

  40. Sir John Templeton suggested a 50% drop!

    Sir John Templeton said 90% drop!!!!!!!!!!

    That's right 90%!!

    I am extremely bearish on housing and I don't think this could possibly happen. I could say at worse 50%. but more likely 30-40% to get us down tho the so called "Normal' Markkets Lereah and the NAR gang keep babbling about.

    This market has not been normal for years.

  41. Fantastic job.

    Keep up the pressure on Lereah!!!!!!!!!!!!!!!!!!!!!!!!

    He owes alot of apologies.

  42. va_investor says

    "We are experiencing a normal cycle in real estate. Nothing more, nothing less."

    Well said Va_Investor! Isn't odd how every generation thinks it is the first to experience what it is experiencing?

  43. anon 1:14 said: "but in the DC area there's still a great deal of pent up demand"

    pent up demand, eh? just waiting to be unleashed? tens of thousands of buyers just waiting for the secret signal to start buying en masse?

    just what exactly is keeping this demand 'pent up'?

  44. lance said:

    va_investor says

    "We are experiencing a normal cycle in real estate. Nothing more, nothing less."

    Well said Va_Investor! Isn't odd how every generation thinks it is the first to experience what it is experiencing?

    From 1988 to 1996, the value of my DC condo dropped by 40% *without* adjusting for inflation.

    Reading some of these comments, I have to think that most commenters are under 35 or have *very* short memories.

  45. Sept 25. According to USA Today Online ver., David 'its a good time to buy' Lereah does it again.

    Lereah is quoted saying, "If...prices...and sales...drop, then we will have... balloons popping rather than air coming out." He added, "But either way, "it's a buyers' market."

    This guy makes my brain hurt!

    In other words, if and only if both prices and sales drop then can we declare we were living during a time of highly inflated home prices, a bubble.

    What David 'take the option ARM' Lereah is really saying is that the only time you and I can conclude we live in an extremely inflated house price market is *after* it deflates. Not during its inflation, nor the end, after it completely deflates; only then can we look back at historical price inflation and deflation and say ahh..there it is...our beloved housing bubble.

    Moreover, if house prices do or do not deflate, its okay b/c either way, "its a good time to buy."

    mrktMaven aka Chris from Jacksonville, FL

  46. Great House Flipping site!

  47. Hey, canary in the coal mine indicator or what?

  48. "Well said Va_Investor! Isn't odd how every generation thinks it is the first to experience what it is experiencing?"

    Well, the price increases over the past few years is something that prior generations haven't experienced (that is, if you haven't lived in Japan).

    It will be interesting to watch how real estate prices evolve over the net year or so.

  49. Great San Diego Housing Flip site

  50. lance said..... "Isn't odd how every generation thinks it is the first to experience what it is experiencing"?

    okay then post a link to an example of where home prices tripled (some areas even more than that) in 5 years....where income and population increases DID NOT cause it.


  51. Cycles repeat, but each is unique. If the economy holds together, this bursting bubble won't be as bad as the 1987-92 decline except in the very hottest areas. Naples went up 30-40% last year alone. Unless most of the people down there hit the lotto, that can't last.

    The 1970s decline had Volker slamming on the brakes which led to 20% mortages. The 1987-92 decline had a change in tax law and the S&L crisis to deepen it. The 2006 decline, well, the most unique feature is the presence of exotic loans which fueled the steep run up in prices.

    Lance, you are exactly right about generational perceptions. That is exactly why these boom-bust cycles keep repeating. It will take a decade for bruised stock market investors to really embrace stocks again (from the last lows) just as it will be another decade or so before we see fights breaking out in lines of people waiting to buy condos before they get "left out."

    In my mind what makes real estate bubbles worse than stock bubbles is the leverage involved, especially with these 100% and greater mortages. People with no means signing their lives away on the perception that they can't lose. Real estate ALWAYS goes up, right? Renting is stupid, RIGHT?

    This latest round of real estate speculation and irresponsible lending makes boiler room pump and dump schemes look legit, almost noble.

    Caveat emptor.

  52. Lereah muttered: "The price drop has stopped the bleeding for housing sales."

    B.S, are public floggings legal in the United States, if not the practice needs to be considered!

  53. "Well said Va_Investor! Isn't odd how every generation thinks it is the first to experience what it is experiencing?"

    Isn't it odd how a computer technician turned small time landlord suddenly decides he is an expert on the RE market because he owns a single rowhouse with a basement?

    If you want to check out what experts are saying about RE you need to check here, but I don't think you will like it:

    "32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000

    (yeah, this is JUST like last time... no difference at all, normal cycle... BTW, in DC proper exotic loans were nearly 60% of total sales at the peak)

    43% of first-time home buyers in 2005 put no money down.

    (lots of proud home "owners" out there)

    15.2% of 2005 home buyers owe at least 10% more than their home is worth.

    (The drop has just barely begun. There are going to be a LOT of young people and specuvestors who are going to get screwed here)

    10% of all home owners have no equity in their homes

    (proud home "owners" all of them... that is literally 1/10 of all owners. Among recent buyers the numbers are FAR higher )

    $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.

    (just like last time, normal cycle, nothing to worry about)

    70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.

    (ouch, so lets see... 60% of all DC buyers in late 2004-mid 2005 bought with "exotic" loans.... a majority of those are already under water and prices have just barely started to fall...)"

    Here is the link for the numbers and a gloomy assessment.


  54. Don't forget that tax law has changed dramatically, where you can sell your primary residence without incurring any capital gains taxes. All you have to do is live in that property for two of the last five years. This increases volume and demand, thus helping the run up in prices.

  55. Leroy,

    Wow. I've seen numbers like that but didn't take time to really source them.


    Duck and cover.

  56. I know...

    On the one hand "This is a 'normal' downturn in the real estate cycle."

    Except, wait, on the other hand..."This is a new paradigm."

    So what explains this drop in the new paradigm?