Interest Rate Roundup

Friday, March 23, 2007

Surprisingly strong existing home sales, but keep an eye on that inventory!

The latest existing home sales data -- for February -- was just released. Here are the details:

* The seasonally adjusted annual rate of sales rose 3.9% to 6.69 million units. That was well above the 6.3 million unit forecast and the fastest rate of sales since April 2006. However, it was still down 3.6% from a year earlier.

* The supply of homes on the market climbed 5.9% from a month earlier to 3.748 million units. That's also up 25.6% from the year-ago figure of 2.985 million and equal to 6.7 months of inventory at the current sales pace.

* Median home prices dropped 1.3% year-over-year to $212,800. Single-family homes accounted for the decline; condo/co-op prices actually rose slightly YOY.

Color me surprised -- these sales numbers were definitely stronger than expected, especially since the pending home sales index dropped 4.1% in January. Weather may have influenced the results to some degree, as the Northeast region showed an outsized 14.2% month-over-month gain. But sales in all regions were either flat or up.

The real problem remains inventory. Just as I expected, we're seeing the "March of the Re-Listers" show up. These are the people who pulled their homes from the market for the holidays, and who are now re-listing them to capitalize on the seasonal uptick in sales we see every spring. Indeed, the 5.9% monthly rise in supply outstripped the 3.9% gain in sales. The current inventory count (shown in the chart above) is also not far below the multi-year high of 3.861 million units set in July 2006. It's likely we'll get very close to that benchmark -- or surpass it -- in the months ahead.

Naturally, that means pricing should remain weak. Median home prices have now fallen below their year-ago level for seven straight months. Tighter lending standards will reduce buying power as well, providing another headwind for home sellers during the key spring real estate season.


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