Interest Rate Roundup

Tuesday, September 25, 2007

August existing home sales drop 4.3%

Anyone who has been following the mortgage and housing markets closely knows they've been in a state of turmoil. Now, we're starting to get "official" data showing the impact of that turmoil. Today, it was August existing home sales figures from the National Association of Realtors. According to the NAR ...

*Sales dropped 4.3% to a seasonally adjusted annual rate of 5.5 million from 5.75 million in July. That was roughly in line with economists' forecasts for a 4.6% decline to 5.48 million. The August sales rate was down 12.8% from 6.31 million a year earlier, leaving it at the lowest level since August 2002.

* For sale inventory came in at 4.581 million single-family homes, condos, and co-ops. That was up 0.4% from 4.561 million in June (previously reported as 4.592 million units), and up 19.2% from 3.844 million in August 2006. It's also the highest level on record. Single-family only inventory is running at 3.92 million. That's about 2 million more units than was common in the 1990s and early 2000s, and about 900,000 more units than we had listed at the previous peak in the 1980s, per this long-term chart.

* On a months supply at current sales pace basis, inventory was 10 months, up from 9.5 months in July (previously reported as 9.6) and up from 7.3 a year earlier. We have a longer history of months' supply figures in the single-family only market. Using that reading (9.8 months), we are the most oversupplied since May 1989 (also 9.8 months). We haven't seen a worse reading since February 1988 (10.3).

* Median prices dropped 1.8% $224,500 in August from $228,700 in July. July's figure was previously reported as $228,900. On a year-over-year basis, prices were up marginally (0.2%) from $224,000 in August 2006. That snapped a record 12-month run of YOY home price declines.

We were expecting bad housing data and that's exactly what we got -- sales fell to the lowest level in a half-decade, while for-sale inventory ballooned to yet another high. To me, the supply story is absolutely essentially. We have the highest absolute level of inventory ever, and the most single-family home inventory on a months supply basis in more than 18 years.

The only way we're going to "clear" the market is by sellers getting realistic. We're starting to see prices come down in some cities, according to the Case-Shiller data. And home builders that are willing to price homes to move -- like Hovnanian did recently -- are clearing some inventory. But too many sellers are sticking to their guns. The end result is today's mammoth inventory glut. Until we get supply and demand into better balance, home prices should stay on a slippery slope lower.


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