September Existing Home Sales Plummet
Submitted by
CalculatedRisk on Wed, 10/24/2007 - 6:00am (83 comments)
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This is all good, you know.
It's perfectly normal for September sales to be as low as January sales.
As expected, home sales were unexpectedly lower than expected. The lower than expected number was expected to be lower despite lowering of the expected numbers to take into account an unexpected drop.
In other words, it's all priced in already, right?
To what extent do Sept sales show the full brunt of the mortgage tightening?
Exports to the U.S. fell 9.2 percent, the biggest drop since November 2003, the Finance Ministry said. Shipments to China, Europe and Asia, which propped up export growth in the past six months, expanded at a slower pace.
Japan's Exports Grow at Slowest Pace in Two Years (Update2) - Bloomberg.com
So does this mean housing has hit a bottom?
wink
Cheers,
prat
Weather prediction: Falling Fed rates with continued dollar drubbing. Collapsing consumers with bursts of sunshine from the administration.
"I wouldn't be surprised to see a small rebound in SAAR sales next month, but the trend is clearly down."
I agree but it would be a one month wonder. Below 5.0M by the end of the year.
Below 4.0M in 2008
Below 3.0M in 2009
Below 2.5M in 2010
If I am proven wrong it would be because the above are too optimistic.
Jas
Funny how the experts never get this right. I personally am suprised it was this good. I think we will bottom at 4.25 million annual sales in 2009.
Another NAR "adjustment" on the way I presume.
--
Housing has hit the top in 2005 that would stand for the life-time of most on this blog.
The Housing Bubble of 2000s has lot more similarities to the Scam Market bubble of 1920s (10% margin on stocks).
It is the Leverage, Stupid!
Jas
Well, Jack Welch was on CNBC this morning and thinks this is "just a blip..yeah were slowing but EVERYTHING is great!"
That did it for me. What have I been thinking all this time? Because old Jack said so, I now see this housing report as great news! We've bottomed out and it's time to buy!
this is old news. sad it is though.
dc's inventory went up from 4.X to over 9 in one month.
sales are definitely up from that this month however but who knows what kind of legs it will have
my new tag line is now, thank god i've emptied my pipeline. i have the pleasure of watching this all with the same sense of Schadenfreude as the rest of you.
thanks to you all!
iceman, good question. September sales were for contracts signed in August and late July (it usually takes 45 to 60 days to close escrow).
Since the credit crunch started at the beginning of August, I'd argue that sales reported in Sept were seriously impacted by the tighter standards.
BTW, the New Home data took the hit a month earlier because those sales are reported when a contract is signed.
Best Wishes.
On that last bar graph you posted CR, there is a spike last Oct-Jan that clearly revealed itself, with the benefit of hindsight, as a dead cat bounce. Recall at the time Greenspan and others were insisting that housing had "bottomed" and would soon rebound.
For the technically-minded, the chart suggests a short-term bounce is possible as we've hit a long term support level of 5.0 million. However, if this level is not held, then Jas' prediction may not seem so far fetched.
dc1000, there will be two types of builders - the smart builders (with empty pipelines) and the builders contemplating BK. I'm glad to hear you are in the first group. Now we need to figure out when to gear up again - I hope you let us know when you break ground on new residential projects.
Best Wishes.
Merrill CEO says troubled assets marked "conservatively"
Panic is in the air.
Now it is time to move on to buyers remorse.
Say bye bye to 7-10 years of equity.
S&P cuts MER counterparty credit rating one notch.
Sharpen those pencils for next month's writedowns
I've always focused on new home sales as a leading indicator of the health of the housing industry and economy in general. The construction on new homes accounts for a huge ripple effect of jobs (you name it). When new home sales are high, the economy seems to do well and the contrary is true as well. I've never really figured out what type of indicator existing homes is. To me it is kind of similar to the used car market. Sure it has an impact, but it is completely different in my opinion. Why should I care so much about existing sales when new home sales seem to tell the story are predict the direction of housing and the economy much earlier. Is this flawed thinking? Just trying to expand my understanding of housing in general...
Since all real estate is local (really, I mean it, it is) I thought I would give one local perspective:
The Jersey Shore.
In 05 and 06 inventory peaked in September, drifted down a little in October, slipped a bit more in November and declined significantly in January.
This year the September-to-October drop did not occur, properties for sale pretty much flatlined while rentals listed on the MLS spiked.
Not good.
NYSE, New York Stock Exchange > About Us > News & Events > Media Resources > Media Resources
stop loss #'s
Rumor going around the LEH is going to take a 9bio writedown today. Not sure I put much credence in that, but BSC was just in the eurodollar options market paying up for what I would say is a fairly expensive rates are going a lot lower quickly bet. It could be execution for a hedge fund client, covering a previous write gone bad, or maybe they just took another look at their own balance sheet.
Ed, another data point, I'm seeing more and more "for lease/rent" signs springing up in suburban Atlanta. Including some newly-built homes that have featured as their primary occupants squirrels, termites and lonely real estate agents.
Some are saying the loss of housing stock (due to fires) in California may help surrounding areas. Do you think that is true?
CFC and IMB stocks are collapsing.
These are excellent companies... Or used to be. Losing either would be astonishing.
Elvis,
Existing Home Sales slowing slows the velocity of money. With lower transactions, certainly everyone who makes money in the process (realtors, title/escrow, carpet sales, etc) all see income reduction.
Aside from the direct impact, the slower speed of money exchange means less consumption by all. Anyone in the business of making money through the movement of money has less, which means they spend less which means money velocity slows further. This is the vicious cycle of money movement that it feeds upon itself.
This credit crunch is another way of saying that money isn't moving as quickly and as smoothly as possible between owners. That is way the financials are getting hit so hard.
For Fun:
Wow, I thought it was 500/750, not 1350/2700!
Knowing Bush & Co., I bet circuit-breakers would tripped below threshhold, with a lame excuse to be made up later were the wrong longs in peril. We may soon find out.
Shouldn't the fire in CA make insurance companies hike premiums?
Don't worry, it's just me.
The California fires impact on housing are statistical noise, IMO. Not to downplay the scale of this tragedy, but so far only about 1300 homes have been destroyed.
To put that number in perspective, Centex which is the 4th largest public builder in US, reported about 6000 homes sold in the 3rd quarter alone. And that was a bad quarter for them, relatively speaking.
As tragic as the CA fires are, a loss of 1300 homes is a drop in the bucket in terms of the supply situation.
Shouldn't the fire in CA make insurance companies hike premiums?
REBear
not necessarily, but it does give the insurance companies the option of placing the claims in the SIV super-dooper fund
O/T
Manufacturing activity in the central Atlantic region pulled back in October...
Current Activity
In October, the seasonally adjusted manufacturing indexour broadest measure of manufacturing activitydecreased to -5 from Septembers reading of 14. Among the indexs components, shipments lost twenty-seven points to -5, new orders fell twenty-two points to -8 and the jobs index edged down four points to finish at 0
In the event of a 190-POINT DECLINE in the NYA, all index-arbitrage sell orders of the S&P 500 stocks must be stabilizing for the remainder of the day. Collar will be removed if the NYA moves back to within 90 points of the previous days close
this is the more important of the breakers'... kills program trading
Elvis,
Existing homes are 80% - 90% of the market. I'm not sure what percent are first time buyers, but most aren't. Without existing home sales, people can't upgrade to bigger homes. The whole pipeline is jammed.
You can't ignore the bulk of the market.
Oct. 24 (Bloomberg) -- National City Corp., the bank that sold its subprime mortgage unit to Merrill Lynch & Co. last year just before the industry unraveled, said third-quarter profit fell 80 percent on renewed losses from home lending and that it would cut 2,500 jobs
National City's Net Income Falls on Mortgage Lending (Update3) - Bloomberg.com
The Atlanta Journal-Constitution
Published on: 10/22/07
Bargain hunters might want to keep their eyes on the new home market over the coming months.
An analyst with the housing-industry tracking firm Metrostudy told a lunchtime meeting of the Council for Quality Growth in Duluth on Monday that it could take builders until 2009 to sell off the thousands of vacant new homes and lots around the metro area.
That means new homes could continue to be an unusually good deal as builders work to unload unsold properties.
The number of finished vacant homes is three times the normal for metro Atlanta, and the number of vacant lots awaiting homes 140,000 is twice the usual number, according to Metrostudy senior analyst Domonic Purviance.
"That's the highest number we have ever seen in the Atlanta region," he said
How long do you informed bloggers think it will take for prices to hit their bottom?
I thought the market would peak a good 3 years before it did so I'm out of the predicting business for good.
"College Loan Corporation, headquartered in San Diego, is a top 10 student loan provider, managing more than $10 billion in student loan assets."
No press release yet but 145 layoffs in Nov?
RE College Loan Corporation
For those who may want to review the student loan asset-backed securities you can go here
Page Not Found
CR, iceman, Dc - Sept closings definately a result of the credit disaster in July/August - I saw about 60 days of no movement and a frozen market in nocal - just starting to thaw the last 2 weeks. In my market (3 counties), 16 pendings over $1 mil in last 15 days (that would be good). A friend with a $2 mil is geting multiple offers and phone calls.
But just looking for getting back to pre August sales volume for now.
Ceilingfan - I don't know exactly but I think it will be many years from now. There will be lots of overanxious knife-catchers who are going to be taught a hard lesson. That "bargain" you think you are getting next year is really just a depreciating asset in the early innings of a long ballgame.
Study past housing downturns, the last thing to recover are the prices. Builder stocks and sales rebound first, then prices bring up the rear.
Ed Hopper, I don't ignore existing sales. I understand all the consequences how they affect new home sales and jobs. Probably better than most. However, I just don't think they are as important as the new home subset despite their greater economic impact in pure dollar terms. Maybe it is just perspective -- the leading indication of new home sales is much easier to evaluate to help predict future behavior for the investments I focus on.
Elvis, yes, changes in existing home sales have far less impact on the economy than new home sales (unless you're a RE agent or escrow officer!). BUT, existing home inventory has a direct impact on new home sales - it is a competing product.
The good news for the builders - so far - is existing home prices are sticky, and this has allowed the builders to keep on selling by lowering their prices. As REOs flood the market, and lenders become more aggressive with their pricing of existing homes that will impact the new home market.
Best to all.
Barley - re College Loan
Student lending companies took a big hit in the new regs that went into effect on 10/1. Margin evaporation of 67% is what Nelnet claimed. Then they laid off 400 people (12% of headcount). I'd expect more lenders to do the same. The gravy train is over for student lending, at least in terms of new originations.
lori - I have to think that a tough fire season like this year has to lower property values in outlying areas of So Cal. Anyone with a "rural" property that has a dumpy house on it and claims it is a possible horse property thinks it is worth 1-2 million. There cannot be too many buyers in this range so if a percentage of them start thinking twice or they cannot get fire insurance it has to have an effect.
Through Sept unadjusted 4.482 million.
My target was 5.0 million for the year- looking like it just might be achieved.
My comment that inventory hit it's high in July looks spot on too.
Not bad indeed. Now to watch the rest of the economy wake up to the hangover from housing, and for a tremendous encore- commercial!!!
Someday this war's gonna end...but it is still a long long long way to Tipperary!!!
--
No Rumor is confirmed until it is officially denied. -- Bismarck.
Recession IS Official
October 24, 2007; 9:00 A.M. Pacific
"White House Economic Team Tells CNBC No Recession In Sight"
Jas
And this is shocking...I should say not..more expected...now Ben will cut..and we head deeper into the Abyss .
--
CNBC made reference to "All The President's Men" in connection with the recession denial from the White House Economic Team. Cover up?
A system of...
Jas
Panic is in the air.
Now it is time to move on to buyers remorse.
Say bye bye to 7-10 years of equity
Do not assume everyone in this country is in up to their eyeballs in Home debt...many MANY including myself did not by into this bubble...
You know it's bad when you need the WH econ team denying the possibility of recession. Can anyone point to some positives outside of export growth? I see net trade as a plus now for GDP growth, but not a lot else. Commercial bldg is slowing in all likeliness, residential is done, cap spdg is flat, consumer spending looks like it's softening, state govt spending is about to take a hit, and I dont seriously think that the fed govt spending can offset nearly enough, unless we start another war.
Jas , turn off CNBC
what are you , a masochist?
( A willingness or tendency to subject oneself to unpleasant or trying experiences.)
RE - College Loan
while not much information is available about the company there is information on the issued trusts. Looking into the latest there seem to be quite a lot of money tied to Libor. Assuming the company works on the same principle it may be just another case of lending long and financing short SIV.
Good to see that all is contained to everywhere! I think we need another huge rate cut to trash the dollar - I mean, to "fix" the market. Because the last rate cut helped so much! Good thing inflation is low, unless one needs food, energy, shelter, health care, education, etc.
As for when the "bottom" will happen, I am going to go out on a limb and say that there will be no clear bottom for many, many years, and that we'll run into local bottoms but maybe no national bottom until insane lending standards and mania return. Here are my reasons:
Just my thoughts - this Bubble may be the largest we'll all see.
--
borkafatty: "And this is shocking...I should say not..more expected...now Ben will cut..and we head deeper into the Abyss."
Yes, helicopter crash in the high Sierras. I can almost see it.
Only a bunch of dupes think that the Fed can keep the US economy from depression. Their supreme leader appointed a guy who will guarantee the depression by fighting the last war (that of 1930s). It is all baked in the cake. The bulls are eating the cake and they wouldnt have it.
Jas
Geoff,
I fully agree, I wrote pretty much the same here:
FT Alphaville » Blog Archive » Draaisma back-pedals — ever so softly
--
"Jas , turn off CNBC what are you , a masochist?"
I am addicted to the boob tube! There are couple of chicks that I like to watch on CNBC.
Jas
The News: At Countrywide (under Angelo Mozilo, above), delinquencies are rising for option adjustable-rate mortgages, which carry low introductory rates but can lead to a rising loan balance.
Background: Lax lending standards led to rising subprime delinquencies. There are signs of similar woes in the prime sector.
Worst to Come? In 2009-2011, monthly payments on $229 billion of option ARMs will readjust (so borrowers may have to pay more).
Should be great tv in 2 years Jas
lori,
I'd guess that the help to current owners of unburned homes will be limited. As central_s notes, the number of homes involved is smallish. In addition, those who have just been burned out still own the land. Insurance pays for rebuilding. Some of the burnt-out owners may chose to move away and sell, but many will stay and rebuild. A lot may depend on joint action, as well. Prompt restoration of utilities and repair of damaged roads and shops would encourage rebuilding. Lots of "for sale" signs on land would probably encourage moving on, in many cases to already existing homes.
So there will be more construction work than otherwise, but maybe not a big run on pre-existing homes.
The stunning drops in sales volume will continue, at least in the San Fernando Valley (Los Angeles):
opened escrows 9/04: 1624
opened escrows 9/05: 1417
opened escrows 9/06: 1063
opened escrows 8/07: 667
opened escrows 9/07: 496
down 53% y/y, down 26% m/m
down 65% from 2 years ago!
down 70% from 3 years ago!
closed sales 9/05: 1616
closed sales 9/06: 1112
closed sales 8/07: 740
closed sales 9/07: 537
down 51% y/y, down 28% m/m
down 67% from 2 years ago!
How low can the sales volume go? Zero?
Based on pending sales, the percipitous drop is set to continue in the coming months.
And to think my worst case scenario of 4.9mm houses may be too optimistic.
Locally here in the SFV of California, the SFH sales were the lowest on record (for any month on record). Pending sales were even lower than closed sales and with an expected 10-15% fallout it is easy to see that October sales will be worse.
If I rummaged around and found some population data and adjusted the number per capita it would make things look like a disaster instead of just really really bad.
Deb & I = tWiNs
Based on my experience working as a RE agent through fires and earthquakes in LA, insurance is going to be the big hang up.
You can't close escrow if you can't get insurance, and insurers are going to be "re-evaluating" their underwriting standards. Some properties were practically uninsurable (hence, unsalable) after the big Malibu fire and Northridge earthquake, at least until things settled down.
The Atlanta Journal-Constitution
Published on: 10/22/07
Bargain hunters might want to keep their eyes on the new home market over the coming months.
Yeah right,
Get a good deal on a house and die of dehydration too. Atlanta only has 3 months of fresh water left.
Q. How do you provide water for 5 million people?
A. Good questio
Deb,
New insurance scrutiny was also a factor in Colo after the 2005 Hayman fire
OT:
So all you metal heads, think you precious metal is being stored and you can access it anytime you wish...well think again.
I have always said the only good precious metal is the one I can hold in my own hand...quite shocking to sat the least.
money for nothing by theodore butler
deb:
"Some properties were practically uninsurable (hence, unsalable) after the big Malibu fire and Northridge earthquake, at least until things settled down."
To what extent should properties be uninsurable? These kinds of fires are not rare events regionally, though they may be locally. What kinds of setback requirements, non-wood building materials, etc should be required to fireproof property?
Honestly, the same kind of effect occurs on the Carolina coasts. People want to build houses where the surf covers their kitchen floors every morning. When do we tell these people that their malicious idiocy is not socially acceptable?
How do you provide water for 5 million people?
Joe M
1 eight oz bottle at a time,
coke, and a smile
When do we tell these people that their malicious idiocy is not socially acceptable?
Odysseus |
since when is insurance a social issue? a private company offers insurance at rates that a buyer may, or may not choose to accept.
since when is insurance a social issue? a private company offers insurance at rates that a buyer may, or may not choose to accept
Bull Insurance is pushed on to the consumer ..try closing your loan with out it..try registering your Auto with out it.. try going to your local Emergency room with out it..and the biggest problem..try collecting from it when you need it.
Insurance is just another American Scam..More money in the coffers..less money in your pocket..so don't tell me its a choice..cause it is not.
CR:
i'll be sure to let you all know when we (if ever!) buy new ground for residential. it won't be for a while i can tell you that.
we've moved on to institutional. education in particular.
watch for it people - its the only bull market in building
any way to track that and its impact?
DC alone is spending over $3 BILLION on modernization and construction.
Duh,
You are kidding, right? Here in Texas the private insurers are pulling back from the coastal counties forcing properties owners to obtain wind insurance from the insurer of last resort. Of course, that program is essentially a taxpayer funded program. Flood insurance is a federal program. If I recall correctly, Florida law forces insurance companies to offer property insurance even if they only want to offer auto.
Unfortunately, development will continue to occur in all the wrong places because of federal and state insurance policies that leave the taxpayer holding the bag. Of course, developers are not complaining.
Best,
any way to track that and its impact?
dc1000 keep one eye on your 'book' and another on local tax receipts. They won't be building schools if the tax revenues don't hold up... there is a finite capacity to 'bond' this stuff.
Dryfly. . . local tax receipts? isn't he in DC where I send my largest checks?
Dryfly. . . local tax receipts? isn't he in DC where I send my largest checks?
Are their schools & hospitals & such federal too? I suppose so. In which case 'let the good times roll'... he'll be the last prosperous person in America.
dry:
the scenario here for this stuff is amazing.
its for charter schools not so much public schools.
the district guarantees the lease. we control the sites (hey we were gonna do townhouses here now we can do schools!). sign the lease, get the financing, close the loan and there ya go.
the charter schools get $14k per student with which to do as they please.
amazing i tell ya.
then there is the tax exempt bond financing at 6% which pays like junk to the bond holders.
then there is the enterprise zone no capital gains taxes.
then there is the crazy depreciation.
then there is the new market tax credit of 39% for each dollar of equity invested.
simply amazing.
so amazing i should shut up about it
so amazing i should shut up about it
LOL. Maybe CR will erase the post for you if you stuff his tip jar.
After he copies it that is.
thanks
good to see ya around. the post counts here get so high that i barely catch you these days.
hope you're hustling good sales.
In all of this the experts still fail to address the real issue. Affordability. Incomes and house prices just do not compute.
The fed the politicians everyone needs to keep their greasy hands off the housing markets so exceesive prices can be corrected downward.