Interest Rate Roundup

Tuesday, November 28, 2006

The good, the bad, the ugly on existing home sales

The National Association of Realtors released October existing home sales data earlier this morning. Here's my summation -- what you might call "the good, the bad, and the ugly" news:

* The sales rate was up 0.5% between September and October to a seasonally adjusted annual 6.24 million. You could call that "good." At the same time, sales were still down 11.5% year over year.

* The inventory news was "bad" all around. The "months supply at current sales pace" measure of inventories ROSE to a new cycle high of 7.4 months from 7.3 in September and 4.9 a year earlier. The condo market is in even worse shape – We have 9.1 months worth of inventory there, up from 8.5 months in September and 5.4 a year earlier.

Actual TOTAL raw inventory climbed to 3.85 million units from 3.78 million in September. The October level is just shy of July’s all-time record, and the month's move REVERSES the minor downtrend we had been seeing in inventory for sale. In condos, to give you an idea for how bad the situation is, supply for sale was up a whopping 45.4% year-over-year, whereas sales were down 14.5% YOY.

* Prices are downright UGLY. Single family homes dropped 3.4% in value year-over-year, the worst drop on record (data goes back to 1968). Condo/co-op prices were down even more – 5.3%. These figures show that prices are declining at an accelerating YOY rate.

Bottom line: While sales rates have stabilized from their summer lows, these latest figures show the housing market is NOT out of the woods – not by a long shot. There is a HUGE supply glut that isn’t going away anytime soon. It’s going take still-lower interest rates, stable employment, and lots and lots of time to work off the excesses of the early 2000s. Don’t expect that to happen overnight. And if anything goes wrong (a recession, surge in unemployment, etc.), things could get worse.


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