Interest Rate Roundup

Thursday, January 25, 2007

My take on existing home sales

The existing home sales figures (full stats available here) for December were just released. They showed ...

* The Seasonally Adjusted Annual Rate of sales slumped 0.8% on the month to 6.22 million from 6.27 million in November. Single family sales dropped 1.3% while condo/coop sales rose 2.1%. From a year ago, home sales are down 7.9%.

* Inventories on a "months supply at current sales pace" basis were 6.8 vs. 7.3 a month earlier. The raw number of homes for sale also declined – 7.9% to 3.51 million units from 3.81 million in November. For-sale inventory was up 23.3% from the previous December, however.

* Median prices were up $5,000 from November, or 2.3%. They were flat YOY.

The housing market was like a trauma patient in the summer – suffering from multiple wounds and at death’s doorstep. Since then, a mild decline in interest rates and aggressive price-cutting/incentives from both new and existing home sellers have helped stabilize the patient. But he’s not getting off the gurney and walking out the door, either – not for some time.

Just look at the sales rate – at 6.22 million, it’s barely off the cycle low of 6.21 million in September. Look at median prices – they’ve gone nowhere in a year and a half. Or look at inventory. Yes, it dropped to 3.51 million units in December. But that is nothing unusual – it’s the customary, seasonal pattern we see year in and year out. Sellers who don’t sell during the main spring and summer seasons often pull their listings during the holidays, then re-list in the spring. Just to pick a few recent years, inventories dropped 2.7% between November and December in 2005 … 12.4% in 2004 … 9.6% in 2003 ... and 9.5% in 2002.

Lastly, there’s the interest rate picture. The yield on the 10-year Treasury Note has jumped about 40 basis points from its low in December. That is putting upward pressure on mortgage rates and helping stymie a rally in mortgage purchase activity.

Bottom line: The housing market is doing better than it was a few months ago, but it’s certainly not booming. I believe we’re in for a relatively weak spring selling season and a weak year. Expect subdued sales, flat to down home prices, and near-record inventories to keep buyers in the driver’s seat.


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