The Atlantic: How Bad Was July's Plummet in Home Sales?
From CR: Existing Home Sales lowest since 1996, 12.5 months of supply
Tuesday, August 24, 2010
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61 comments:
This chart does not start at zero to better dramaticize the change...
:)
(he updated it with ones that do start at zero)
Welcome to reality...
Existing Home Sales lowest since 1996, 12.5 months of supply. Sounds like all euphoria in this forum should now be in check. We are on our way to real price discovery. And, we have quite a way to go.
Really spider?
These are the national statistics. Nationally the median price is under $200k, well into the range that buyers can be swayed by the $8k to move up their purchase date. How hard do you think it really is to adjust that by 1 month? by 2? by 3?. All this really tells us is the start of how we should interpret the small upwards surge in March-May. July's 27% drop in sales means that March-May should all be adjusted down ~8%? each. When/if it persists into August at about July's rate then that will have to be averaged in too. I think overall we're still in the hangover period from the first deadline last October, and that the averages will come out to close to the January/February rates nationally.
Cara-
I think the hangover will probably be worse than the hangover from the last house buyers credit. Over the last year a lot of people who had been waiting for the last ~3-4 years decided to buy as they saw housing start to recover. So now there are fewer buyers who are ready and able to buy and the almost peak inventory of houses for sale. If I am correct that most people who had been holding off on buying because of prices have now bought we should expect additional weakness.
Obviously these numbers are national, but if national prices start heading down DC will also fall. Our prices directionally followed the national trend the entire boom and bust. The magnitude was different, and could also be different this time, but its hard for me to imagine DC totally avoids the national trend.
Anyone see this ?
"But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets."
Don't think i'd be buying in these neighborhoods.
hb, agreed. I just didn't want to put out a prediction for how much DC will fall. Too many variables. Many different amounts are believable. All I can say is another 20% drop would surprise me, personally, because it would mean that at current interest rates buying a SFH in my area of FFX would be cheaper than renting a 2 bedroom apartment even with no money down. That seems pretty implausibly cheap IMO for a close in suburb, and would have to really mean demand evaporated.
My only quibble is "almost peak inventory of houses for sale"? Where? Not outside the beltway which has the biggest potential for REOs to pull prices down.
Cara, I don't track Burke and wouldn't want to predict any particular town. I was just referring to some of the posters here who were making fun of any bearish comments.
Believe it not, most close-in areas I track have a lot to decline before they are even comparable from price/rent perspective.
"Spider said...
And yes - CRT should get ready to eat his words. Or may be never report back here. Anon is welcome to join him."
Speaking of eating ones words, did you enjoy choking down your comments on the great inventory STAMPEDE of 2010? I know that was alot to digest, glad you didnt choke to death. Was it tasty?
Regarding CRT, you know timing is a critical component in making someone eat their words. After all, heres what you said 9 months ago:
"CRT - Let's see in few months - I will see you eat your words. No offense..got to say it when it is called for!!!...11/25/09 12:22 AM"
So in Nov 2009, it was "in a few months". Did that happen Spider? Did any sort of cataclysm start in Jan, Feb, Mar, 2010 (coindicentally when you were calling for the stampede to start) as you predicted?
Also, while on the subject, weve got one more upcoming prediction of yours to address:
"Spider said...We will revisit 165 and break below (my prediction is 150-155) sometime in 2010. HAMP failure and fed exit makes this almost certain...12/29/09 11:02 AM"
Well 2010 is not out yet but weve only got 1/2 a year left to go before you have to start munching on this one. Nothing is certain, but given the distance between where we are now (Case Shiller @182) and what you said you might as well go ahead and put the oven on preheat. Also, may I suggest putting some redsauce on your prediction, and maybe pair it up with a nice Bordeaux or Sangiovese!
"Anon said...Well 2010 is not out yet but weve only got 1/2 a year left..."
CS numbers you are claiming are much outdated for you to claim anything. Real CS numbers for summer won't even come out until fall. CS for later this winter won't come until next spring. Wait & watch 165 break right in front of your eyes. None of CRT's gray hair or arrogance for that matter will be able to stop it.
Interest rates still matter.
I see a price spike this Fall. CS will be over 200 by the end of the year.
Spider,
Just so I understand, CRT is arrogant for being correct and you are *not* disengenous for continuing to push back the time line for when you might possibly be shown to have predicted a downturn that may or may not be a crash?
Thanks,
My $0.02
"Spider said...CS numbers you are claiming are much outdated for you to claim anything. Real CS numbers for summer won't even come out until fall. CS for later this winter won't come until next spring."
And yet, even with this knowledge, you STILL predicted that we would smash below the 2009 lows in 2010...
"Spider said...Wait & watch 165 break right in front of your eyes. None of CRT's gray hair or arrogance for that matter will be able to stop it."
So again, timing doesnt matter? If in 2014 terrorists detonate a dirty bomb in DC, causing prices to plummet, will you be back here saying "see, I TOLD YOU SO!!!"
"Robert said...
I see a price spike this Fall. CS will be over 200 by the end of the year."
Can I mark you down for that one Robert? Can we say your prediction is 200 by late feb, 2011 (when December 2010 CS numbers are released)?
If so, I will be taking the under.
"Anon said - And yet, even with this knowledge, you STILL predicted that we would smash below the 2009 lows in 2010..."
Is 2010 over? Are all CS numbers out that reflect 2010? Are we on the same planet?
mytwocents, data isn't out yet. You can't say who is right or wrong.
Oh great we are making predictions and everybody is keeping track..So, here is mine. If the house and senate are both republican dominated with the Nov. election by the end of the first quarter of 2011 we will definitely be out of the recession.
It's based on all the cash laying around waiting to see what future government prgrams are going to be mandated that isn't incorporated into their business model.
"spider said...
Is 2010 over? Are all CS numbers out that reflect 2010? Are we on the same planet?"
So what are you trying to say Spider??? Do you now stand by your earlier prediction "We will revisit 165 and break below (my prediction is 150-155) sometime in 2010"???
Like I said, 2010 is only 1/2 over so its only time to preheat the oven. Still, do you want to stand here today, August 24, 2010 and double up on that recipe by reitirating your prediction?
I agree with you Arkey.
"spider said...
mytwocents, data isn't out yet. You can't say who is right or wrong."
You sure can spider. 0.02 is emphasizing your statement to CRT last year which was:
"Spider said...CRT - Let's see IN A FEW MONTHS - I will see you eat your words...11/25/09 12:22 AM"
So that data isnt out yet? It isnt A FEW MONTHS yet? Seriously?
More QE is on the way. Inventory is tight. Foreclosures are nearly exhausted.
Cara-
When I was saying almost peak inventory I was still talking about national numbers. Inventory is ~10% below peak inventory.
I was just trying to say that nationally things look really bad and if housing falls nationally DC will also go down. The questions is just how much.
http://www.hiddenlevers.com/hl/u?dbQo8P
is apparently a good vizualization
robert says:
"nventory is tight."
woah dude,
MOI in arlington is 4.7 months right now, that's not tight.
it's not loosegooesy like vegas but
http://www.housingtracker.net/asking-prices/washington-dc/
look at the chart.
Robert
look here
http://novabubblefallout.blogspot.com/2010/08/northern-virginia-july-housing-sales.html
4.4 months of inventory in Arlington,
11 in culpeper.
now those who don't need to sell will withdraw again. Those who must sell will give it up.
It's ugly.
pat,
I wouldn't throw Culpeper into the mix, just as I wouldn't include Clark(e?) County, Spotsylvania, W.Va, etc. The economic "driver's" are not comparable and the land supply is crazy different.
We've seen what happens when endless land is available (PWC and Loudoun). Tons of new construction combined with no-doc combined with a buying frenzy; all at Market Peak = disaster.
VA-
I agree that Culpepper shouldn't be counted, but Pat's point is correct that inventory is not tight. If anything I would consider it fairly high.
hb,
I don't think inventory is high at all. We will have to see how it shakes out in the next 6 or 8 months.
6 months has always been somewhat of a benchmark. The "absolute" numbers are way off the highs. We will have to see if sales keep pace with new listings. If the numbers keep creeping up vs a flat situation...time will tell.
I know most of you like NoVa but
i've been looking Arl,Alx, DC
and here is a stunning stat from MRIS volume down 35%, prices down 15% in zip 20002
2010 2009 % Change
Total Sold Dollar Volume: $ 22,408,538 $ 34,948,502 -35.88 %
Average Sold Price: $ 386,354 $ 459,849 -15.98 %
Median Sold Price: $ 344,500 $ 402,000 - 14.30 %
Total Units Sold: 58 76 - 23.68 %
Average Days on Market: 52 87 - 40.23 %
Average List Price for Solds: $ 412,124 $ 494,641 - 16.68 %
Avg Sale Price as a
percentage of Avg List Price: 93.75 % 92.97 %
So, are you saying that prices are really 15% lower in DC over the past year?
It is 58 sales and you are using the mean not the median. Bleh.
Invesco Real Estate US of Dallas has acquired Metropolitan at Pentagon City
According to public records, the 325-unit building traded for about $125 million.
There was a tremendous amount of interest in the property, Roohan tells GlobeSt.com, including pension funds and REITs vying for the asset. “That submarket is expected to post huge rent growth, of 4% to 7%, over the next five years,” he says.
Last October, the sister building--Metropolitan at Pentagon Row, a 326-unit luxury apartment high-rise--traded for $100 million. Equity Residential purchased the building for cash from a Kettler joint venture.
Expect investor demand, both large and small, to increase dramatically as a result of lower interest rates this Fall.
VA-
Nationally 6 months was the benchmark. Locally this number is much lower. Fairfax had 6 months of inventory July of 2006-2008, which was when prices were falling ~1%/month. When prices were going up at a normal rate in 98-00 inventory was closer to 2-3 months. I think for this area anything over 4 months is high.
Its possible lots of people start bailing and inventory shrinks, but my guess is that inventory stagnates and sales continue to slow. Although Robert is right that 4% interest rates surely can't hurt sales. Although I think he will be way off base that housing prices will go up 10% in the next several months.
hb,
I wish I could get some of that 4% money. With all the new rules alot of "good" borrowers are shut out:).
I don't see any significant change in prices (10%) either up or down. I think that we will bounce along the bottom for a number of years unless the economy gets much worse...
I can't think of a location I would rather be in to ride this out. I think rents will tighten and, as Robert pointed out, others do too.
There really is no chance of any significant inventory coming on line in the next 5 yrs. I've seen the preliminary plan for Reston (vis-a-vis the metro stop areas) and it will be a decade or more in the development.
VA-
I don't think there will be much inventory for SFH, but I think there could be additional inventory for condos and TH. In the 5 minute walk from my house to Panera I can see the construction of what will become a large condo and ~100 THs over the next ~18 months. Although there is a lot of construction in my area related to the mosaic district
I also agree with you that there will not be significant price changes, but I do think prices will trend down ~10% over the next couple of years assuming the fed doesn't do any additional programs. I think you are right that rents will start increasing, but as this happens mortgage rates will likely creep up keeping the rent/buy calculation fairly unchanged. I think we are now in a time when buying a well priced property is no longer a bad investment, although it may marginally become a better deal between now and 2012.
hb,
Thanks for the clarification, that makes much more sense.
pat, 35% down? only using total dollar volume which combines both the loss in price and the loss in sales volume. 76 sales down to 58 BFD. Sales time is down, and sales price as a percentage of list is up, sounds like sellers and buyers are finally converging on what a fair price is to me. Sounds like a great sign of movement towards health.
Robert, LOL, literally. Are you serious about the 200 CS call, or just pulling our leg? In any case it made me smile. QE? (quarterly earnings?)
Cara-
QE = quantitative easing (aka fed throwing money into the system by buying treasuries or mortgage backed securities. Maybe even some new way to throw money into the system)
I also totally understand why you were confused about my post When I reread it I was like what the heck am I talking about. Inventory is ~half of its peak, before remembering I was talking about national numbers.
housebuyer said...I think you are right that rents will start increasing, but as this happens mortgage rates will likely creep up keeping the rent/buy calculation fairly unchanged.
You've been pretty consistent since joining this board that interest rates will increase and all they've done is decrease.
cara, yes, CS=200. That's only 10%. The cost of money has dropped more than 10%, actually, almost 35% in the last 4 months.
Still trying to get a simple read out of this whole thread....
If x number of people are always considered homeowners, and that demand translates as Y demand for homes, isn't one way of interpreting the last 10 years of craziness as supply has outstripped demand, and supply continues to outpace demand because lending rules have tightened and more inventory is still on the market therefore supply will continue to outpace demand for Z years? (gasp -big breath of air)
-We had a surge in building in the last 10 years )(+Supply)
-We had a surge in home values (demand exceeding supply)
-We had a surge in home buyers(loose lending)(+Demand)
Now:
-We have tightened lending standards (- Demand)
-We still have more supply coming on the market (+ REO's /Foreclosures)
When supply exceeds demand the law says prices drop. MOI keeps creeping up and I keep seeing posts and articles that say prices will only slightly decline.
That don't jive with the law.
Long thought I know but that's what I am thinking today.
TN,
kinks with that simple story.
In 2007-2008 we had a ton of excess renters making over $150k/year in FFX cnty. These people would normally have bought, but somehow were smart enough not to, and have been supplying buyers to the market ever since. (the question is are they now used up?)
The cost of money is way way down. Such that rental parity is here for much of the region. Everyone's got to live somewhere at some point it does become, why not buy?
For Arlington and Alexandria the population growth amongst high wage earners exceeded the new construction growth even during the bubble, and the REOs and foreclosure rates have been relatively minimal. FFX was slightly overbuilt by this metric (refering back to long ago posts of CRT) but not by that much, and it also does have a significant REO problem. So I would say, FFX is looking at additional losses, it's just a question of how much. PWC and the like were incredibly overbuilt and had/have a huge REO overhang, but they also experienced such huge drops in price that it's completely unclear that prices actually need to go any lower at today's tiny inventory numbers.
Cara's prediction for end of 2010 CS, the DC area as a whole rolls back to between 172 - 177 erasing this spring's last hurrah, but not the full 2009 gains. Oh, and mortgage rates on the 30 year hit 4 sometime before the end of the year.
But you're right Robert, if today's buyers make exactly the same amount of money as this spring's buyers or last fall's buyers, they can afford to pay more at today's crazy low rates. I just think they'll see the fear in the seller's eyes and demand 5% under this spring's comps.
Every time I see: Record low mortgage rates, I translate that to free cash flow for NOVA homeowners.
The volume of refi applications last week was up 26 percent over their level four weeks ago," Michael Fratantoni, the MBA's Vice President of Research and Economics, said in a statement.
Unfortunately this refi free cash flow will disproportionaly benefit our economy. Why? NOVA has a greater percentage of homeowners that have 80% LTV's and a stable income history. So, the rich get richer. Of course, it wouldn't surprise me if Obama gave this same deal to the entire country.
TN,
I'll agree that supply was/is out of whack. The reason is that we had alot of "false" demand. Investors bought many units with the intent of flipping them. Stupid builders (and economists) mistook this for real demand.
I'll disagree that continued reo's are creating more supply. I believe that the supply is pretty much "fixed" and it's just a matter of time before the excess will be soaked-up.
People who are foreclosed upon have to live somewhere. Sure, there is and will be some "doubling up". But, as many here point out, rents are lower than the inflated mortgages these people found unaffordable. I'd argue that owners become renters and housing stock is not freeded up.
I've had many prospective tenants who were going through foreclosure or a short. It's ironic in some ways. I can buy an reo that is cash-flow positive because of the price discount. People who were paying 2,000 or so can afford to rent their house back for 1,200 or 1,400.
TN -
new jobs = demand
"Housebuyer said...
Fairfax had 6 months of inventory July of 2006-2008, which was when prices were falling ~1%/month."
Housebuyer, a little perspective is necessary here. While each July was good, the intervening months were pretty awful.
FFX MOI
2006
Jul 6.74
Aug 5.97
Sep 7.53
Oct 7.31
Nov 6.35
Dec 4.43
2007
Jan 5.23
Feb 4.96
Mar 4.90
Apr 6.22
May 6.28
Jun 5.84
Jul 6.37
Aug 6.72
Sep 11.57
Oct 10.35
Nov 9.95
Dec 8.21
2008
Jan 13.15
Feb 9.80
Mar 8.63
Apr 7.90
May 6.67
Jun 5.79
Jul 5.66
As you can clearly see, the wheels fell off in Sep 2007 when the big credit crunch hit. So sure, each sucessive July looked ok. However, the massive inventory ovehang we had in late 2007 made the massive crash of 2008 pretty much a foregone conclusion.
Robert-
I joined this blog at the start of 2009 and interest rates rose significantly from that point until April 2010. You are correct that I did not predict that the global economy would start to fall apart in April 2010 pulling interest rates down, but it is a little crazy to claim interest rates have been falling for the last 18 months, when they only started falling 4 months ago. I also still think over the next 3+ years mortgage rates will go up (do you really think we will end up looking like Japan)
If want to call each out for bad predictions I thought you said that housing prices were going to skyrocket this year. If you noticed they fell the entire year until right before the tax credit and several indicators show they have fallen after the credit. Unless the fed does a new massive program there is no way CS gets above 200 this year.
Also how do you figure money is 35% cheaper in the last four months. In April the average Fannie mortgage was 5.1% it is now 4.4%. If you look at the total cost of ownership this would not even decrease payments by 10%. So can you explain where you are getting your numbers from?
Anon-
Housing sales are extremely seasonal, which is why I was comparing July vs. July. If we get through this winter and MOI is still 5-6 I then I will need to change my predictions, but I do think MOI will increase as sales drop off and inventory stays fairly flat.
10 year treasury
Sorry I don't have daily rates on mortgages, but 4% (April 5th) down to 2.45% (today) = down 38.75%.
Anon-
Housing sales are extremely seasonal, which is why I was comparing July vs. July.
HB maybe I misunderstood you. From your original remark, "Fairfax had 6 months of inventory July of 2006-2008, which was when prices were falling ~1%/month.", I took that to suggest, "well if MOI was so good each July, how could prices have fallen?". If thats not what you meant, then fair enough.
My point was, even if MOI isnt high in a given month, prices may still fall if MOI was high in the previous months. For example, FFX had excessively high MOI from Sept 07 to Feb 08. Far far worse than it was in previous winters (or subsequent ones) Accordingly, the steepest price fall was a few months later in summer/fall of 2008.
Robert-
If you are talking about treasury rates than they are still up from March 09 when I started saying they would go up. Although you are correct the last 4 months obviously caused them to fall dramatically.
mortgage rates
You can use this website to show mortgage rates. When I originally said they would go up they were in the 4.8% range. They then went to 5.3% in late 09 and have fallen to 4.5%. Since April they have fallen 10%, so you are predicting that the entire reduction in rates goes to a rise in housing prices, which I highly doubt.
Anon-
Good point about the price falls, I think that 6 MOI in July likely means it will be higher in fall and winter, but we will see :)
Robert-
Do you also think national prices will also rise? The national data looks way worse than the DC data, but if you look historically DC has never gone up while the national prices were falling. I don't think this trend will change, we may fall less, but if nationally prices fall DC will not be different.
hb,
Your 4.5% number is not current and I think the high was at least 5.5% in April.
I think house prices nationally could drift lower, but with significant regional/metro disparity.
Robert-
Sorry I meant to type they are 4.4%, I typed it in the first comment and accidentally typed 4.5%. The 4.4% number is accurate as of Friday's release although you are probably right that it will fall another 0.1% this month. The highest April number was 5.2%, if you looked at the site I put up. These are all based on Freddie's weekly releases. Either way housing cost is down ~10% not 35%.
hb,
Use weekly averages and guesses if you like, the 10 year is down 38% as I posted. The 30 year simply isn't down only 10% over the same period.
CARA, Robert, HB
I want to reiterate my stats were
only for Zip Code 20002,
but that is the Atlas District area.
if i had selected 20001 which is south capital Hill it would be up 9%
with a volume decrease of 14%.
Robert-
People do not use 10 year treasuries they use 30 year mortgages. Using weekly averages instead of daily numbers at most matters 0.1%. I don't know why you are fighting that mortgage rates fell 38%, because it is a fight were you are just wrong. There is 0 question about it.
Robert-
In addition to the fact that mortgage rates are higher than treasury rates, which mutes the movement in percentage terms they also don't move as much as rates get lower.
As rates fall the chance of someone refinancing decreases which makes the mortgage effectively a bond with a longer maturity and longer maturity bonds have slightly higher yields. So as rates have fallen on the 10 year they have fallen less on mortgage rates. If you want I can send you some materials on the convexity of mortgage bonds that explains this phenomenon.
As rates fall the chance of someone refinancing decreases...
This must be true in the anti-universe, not this one.
And going back to your own math, you have rates falling from 5.2% to 4.3%, or 17%.
If I had the intra-week numbers from April 5th and the mortgage sheet that came out this morning, it'll be a lot closer to 35% than 10%.
Robert-
Yes people who have mortgages are more likely to refinance when rates fall. This is not what I was saying.
I was saying that when a new home buyer who gets a mortgage at 4% they are less likely to refinance in the future than a buyer who gets a 5% mortgage. The lower rates get the harder it is for them rates to fall enough to make it worth refinancing in the future. So with a 5% mortgage banks will assume it has an average life of ~7 years, but as the rate falls to 4% they expect it to have a longer average life. This is why mortgage rates do not move as much as treasuries.
Rates were 5.2% and went to 4.4%. I don't know why you think that interest rates moved a ton intraweek. They tend to only move a few hundredths of a percent a day. Either way lets assume that intra week you found a 5.3% rate and rates today are 4.3%. Although this is a 19% reduction in the mortgage rate it would only increases the payment by 10%. Once you add on the fact you have to pay down principal and have taxes the 1% change in mortgage rates only lowers your payment the same 10% I said.
Google mortgage calculator if you want to do the math yourself
They tend to only move a few hundredths of a percent a day.
Really? 0.02 or 0.03 per day?
Some of your language indicates you know something about the mortgage industry then you say something like that.
Once you add on the fact you have to pay down principal and have taxes..
Taxes? When did we start talking about taxes? What about HOA dues? Home maintenance? Landscaping?
I never talked about the entire cost of owning a house. I was talking about the cost of money.
Your 19% number, while still flawed, is at least what my original comment was in relation to.
Robert-
A few hundreths as in 0-0.06% a day. If you look at the site I sent about mortgage rates, you will see that the biggest weekly move since rates started sliding in April was only 0.1%. Do you really think there are huge daily moves and they always average to small weekly moves? Sure some days have bigger moves than I 0-.06%, but these days are rare (once every other week).
I also made it very clear I was talking about the cost of ownership not the cost of money. When people pay for a house they care about a cost of the payment not the cost of money. I also added taxes and principal payments, because if houses go up the 10% you were talking about both of these would go up. You can run the calculations if you want, but 10% higher mortgage with a 4.3% rate costs more than a mortgage with a 5.3% rate. This becomes even more true if you look at the after tax cost (which is what really matters).
So although you made it sound like housing prices were going to go up less than the full amount of money people saved with lower interest rates, in fact you are predicting housing payments will go up more than enough to fully offset lower interest rates.
If you don't believe me about movements in mortgage rates you can look at the daily movements on agency backed mortgage securities on bloomberg or a similar service if you have access to it.
Robert-
The current mortgage rate number just came out at 4.36%, which is higher than the 4.3% I was using. I am not sure why you think mortgage rates are so volatile. Generally they move very slowly.
mortgage rates
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