In the wake of this morning’s horrendous Existing Home Sales report, Felix Salmon writes:
This number is the lowest that the NAR has ever reported, and I can see why it spooked the markets, sending 10-year Treasuries breaking through the 2.5% level: we’re seeing less housing market activity now than we were even during the depths of the crisis. According to the NAR, there were 4.94 million existing homes sold in 2007, 4.34 million sold in 2008, and 4.57 million sold in 2009. The latest annualized number in that series, for July 2010, is just 3.37 million. That’s a 26% fall from last year’s rate.
The number is so low that it looks like a statistical aberration: let’s hope it is. Because if it isn’t, the news is gruesome.
But, which part of this graph is the statistical aberration?
The most important number, the number that drives prices, is the Months-of-Supply. Which is the statistical blip in this graph?
Salmon goes on to say:
The news also means that there’s a big gap between buyers and sellers: the market isn’t clearing. Sellers are convinced that their homes are worth lots of money, or will rise in price if they just hold out a bit longer; buyers are happily renting, waiting for prices to come down. And entrepreneurial types, whom one would expect to arbitrage the two by buying houses with super-cheap mortgages and renting them out at a profit, don’t seem to have found those opportunities yet.
Houses are rarely a liquid asset; they were, briefly, during the housing boom, but now they’re more illiquid than ever. America is a country where two generations of homeowners have learned to consider their houses an asset; they’re rapidly learning that at times like these, a house can look much more like a liability. (And refinancing your mortgage is just liability management.) The enormous repercussions of that change in mindset are only just beginning to be felt.
It appears that the Eye of The Storm has passed. The second phase of the housing crash is upon us.
August 25, 2010 at 5:20 am
It’s not the hurricane that does the most damage… Watch out for the storm surge!
August 25, 2010 at 8:25 am
Is it too simplistic to say that since the Dow is about where it was in 1999/2000, housing prices should be too?
August 25, 2010 at 8:42 am
Housing prices began their steady and accelerating climb nationally around January 1997. By 2000 they were already overvalued.
Sadly, today’s market conditions are far worse than those that existed in 1997. Explain to me why the same house today should be worth more than it was before the Housing Bubble (on an inflation adjusted basis)? But if the market determinants of value are worse (unemployment, demand, inventory supply, perception of risk) houses today should be trading at a discount to 1997 values as they now do in Detroit, Las Vegas and Atlanta.
August 25, 2010 at 9:21 am
The bay area, in particular the city of San Francisco, have yet to fully work through the option ARMs that are due to recast (not reset). If you look at the number of people with these types of loans who have opted for the minimum payment, its far north of 80%, so most of these people have not been paying down debt, but rather accumulating more of it! Once it goes over a certain percentage of the original loan, the loan will recast and the borrower no longer has the min payment option. Monthly payments go way up, even doubling in some cases which will eventually lead to a further round of foreclosures in the high-end market. Most of these loans are set to recast now and into 2011. Look out below!
August 25, 2010 at 9:35 am
Those graphs are great Greg.
I’d say the statistical aberration is clearly the government stimulus period. I wonder if we might actually have been better off if we didn’t have any stimulus at all? How much debt has the federal government added by paying people to buy homes that will likely be going down in value over the next little bit?
It looks like July’s home sales are right where they should have been, had there not been so many external factors over the last five years persuading people to buy when they really shouldn’t have. It was the overly low mortgage interest rates, sub prime loans, government incentives, over zealous real estate investors and flippers, and belief that real estate purchases are a get rich quick scheme that caused the real statistical aberrations.
August 25, 2010 at 4:36 pm
The simple fact is that zero jobs have been created!!! and we have more debt than ever.
The simple fact is that quantitative easing has made some bankers richer and bigger without helping main street.
No recovery will take place for a period of 10 / 20 years…….. Japan will recover from it’s recession before the U.S. which occurred over 15 years ago then the US. will come out with LUCK!!!!
The government is shamefully and artificially holding both the real estate market and financial markets UP!! and it’s failing……. let the market adjust and close some banks.
10 – 20 years recovery at least.
July 28, 2011 at 9:34 am
How much of an fascinating write-up, preserve authoring better half