Currently 6% of owner occupied units would be about 4.6 million existing home sales per year. This indicates that the turnover of existing homes - November sales were at a 5.0 million Seasonally Adjusted Annual Rate (SAAR) - is still above the historical median.
This suggests sales will fall much further in 2008.
One thing the local paper pointed out (anecdotally) is that "everybody who needed a home bought one during the boom, so there's no buyers left in the market".
I think there's merit to the idea that we have pent-up anti-demand that could take us far below historic turnover rates.
ac, all the data suggests - at least to me - that we will see falling sales in 2008. I'm still working on my forecast, but I think 4.6 million units in '08 would be a good year for existing home sales under the circumstances. Heck, even a decline to 5% of owner occupied units, or around 3.8 million, is possible (although housing usually has a lot of momentum that takes some time to break).
Single family New Starts are down 60% y-o-y. And let's face it a large percentage of the permits pulled in 06-07 are going to expire.
CR, Could we overlay the referenced data on the first graph?
Interesting to see that thought out in your local media, that concept seems underexplored - how much demand was pulled forward in the RE runup - and of those left to purchase, who has the balance sheet strength to qualify?
If they couldn't qualify previously, that seems more of a stretch now and if they held off in the runup, they would seem to be waiting for the price declines...which have yet to begin in earnest in many areas.
Jackie Castleberry won't be playing Santa Claus this year.
She usually buys her grandchildren, nieces and nephews lots of gifts around the holidays -- bicycles, educational games, clothes -- but this year she is just struggling to keep her North Las Vegas, Nevada, house.
The interest rate on her four-bedroom home loan shot up in October and she is $6,000 behind on her payments. She now owes $168,000 on her home, which once was worth $220,000 but is now worth about $150,000.
In the past, when times were tough, she would borrow against her home's equity -- that's no longer possible. possible.
--CNN
I'm not sure if this has been mentioned elsewhere here, but there's a rumor circulating today that National City has closed its wholesale lending division.
Maybe we'll get an official announcement after the markets close.
I love your charts. But I still don't agree with your use of the 6% historical mean as a benchmark for a normalized 2007/2008 market. I think the current normalized benchmark is around 8.5%, but that is just my opinion.
Interesting to see that thought out in your local media, that concept seems underexplored - how much demand was pulled forward in the RE runup - and of those left to purchase, who has the balance sheet strength to qualify?
IIRC it was a disenchanted real estate agent essentially suggesting that she'd already sold a house to everyone she knew.
Where I work there are a lot of younger people straight out of college with good incomes that can handle a mortgage payment right out of the gate.
I really saw the buying panic up close and personal with these guys -- they would cringe and yelp every time they heard that house prices had surged yet again, and there was a very real fear of getting "priced out forever".
It was like trying to hold a dog back when he sees a friendly pack running through the street.
Needless to say a lot of them jumped in and bought houses right at the peak. Now that prices are beginning to fall sharply, there's almost nobody in my office in the position to capitalize on the situation.
Everything about RE seems to be falling...except prices!!!
5-10% down from houses that increased 100-150% in 5 years, is not that much of a sell-off.
When do think that mortgage problems, consumer spending, increased inventory and lower sales will have an effect on prices? Will prices return to '99-'00 before the run up?
The new and existing home sales graph does not look like a 'typical' speculative bubble. Otherwise, the new home sales plot would have already leveled out. This is troublesome. But what do I know! Keep up the great work CR.
it's tough to use historical trends to predict the future in these very un-historical times. i've seen properties that would normally be taken off the market for the holidays remain on due to this fact.
JD,
Is it possible that you are conflating home sales and mortgage originations (sales plus refis)? 8.5% per year turnover would imply an average holding period of 12 years versus 16 for a 6% turnover. Seems too short.
Repoman: I've lived two bubbles: the LA one 1989-1992, and Tokyo 1992-2000.
The pattern in both cases was just a slow erosion of prices year after year. Tokyo finally bottomed out just last year, LA started to pick up around 2000-2001 from loose coupling with the Bay Area's dotcom market buzz.
The significant tax cuts of 2001-2003 (putting ~$300/mo in the median buyer's pocket) and the interest rate drops 2002-2004 pushed up prices another $100,000 ~ $200,000 across the board.
Prices will in the global react to interest rates, but they rocket up and drift down. The strongest determinant of prices (in non-insane lending environments) is local incomes. Here in the S SF Bay Area, ceteris paribus, I think we'll only see the 2005-2006 speculative blowoff worked off, not the dotcom gains, due to the relatively strong employment situation and tremendous number of Indian families who are ready and willing to buy into the American Dream.
IMHO 2008 may be the year of 'Is it too late to sell?' when more people realize this run-up was a once-in-a-lifetime event.
There are still alot of folks sitting on tons of equity planning to cash in and take advantage of the $250k/$500k tax break, who will be watching prices fall and doing back-of-the-envelope calcs in that regard. In the 1990's there were also alot of deeds-of-trust offered by these types of owners who wanted to sell and get a steady income, particularly those who no longer had a mortgage and had owned for 20+ years.
These folks may want to get out by lowering the price before their nest egg evaporates. Sales numbers may only dip slightly or hold steady when considering this and the increasing volume of distressed sales.
This seems another data point worthy of discussion - defaults on privately insured mortgages - also, though not explored in the Bloomberg link below the cure rate for defaults is not looking good...
Dec. 31 (Bloomberg) -- Defaults on privately insured U.S. mortgages rose 35 percent in November to a record, an industry report today showed, adding to evidence the U.S. housing slump is deepening.
Can anyone here point me to some San Francisco specific data? My brother in law is about to buy a condo in SF (right in the city) and I was urging him to wait for prices to go down. He says there have been big drops in outlying areas, but not in the city itself - and he thinks perhaps prices will never drop in that area. But I am thinking "I bet a lot of those condos were bought with option ARMs and there is a serious foreclosure risk." So I'd like to know more about the area.
The 6% long-term average of turnover may have increased a bit because of the $250/500K cap gains exemption that started in 1997 (or 1998?). Eliminating that "cost" for most people makes moving more appealing (though it inflates prices at the same time).
Of course, even if the long-term average is now 7%, there is no reason a yearly number can't undershoot the average.
I'm watching the large-ish condo development I want to live in, which is about 5 miles from where I rent, on the online mls.
I'm tracking in a spreadsheet every unit listed, its price drops, and when it is delisted or sold.
I will buy when there's any positive traction in prices, or the rent I'm paying forces me out (last year I got jacked with a 10% rate increase).
I've also created a spreadsheet where I plug in purchase price and loan interest rate, and it tells me the after-tax total cost of purchase on a monthly basis (eg. a $400k condo with 5% down @ 6.25% has a monthly carrying cost of $2050. . . my rent is $500 less than that, so buying in this down market isn't an attraction, yet).
I think the increasing use of the word "unprecedented" makes the price trajectory difficult to predict. It is difficult for me to imagine it surprising to the price upside.
Credit normalized to GDP has been expanding since the early 80s.
Emma Anne: San Francisco proper - where I am - is the very heart of denial. It will be a while before a correction settles in.
However, as prices in the Fortress become increasingly misaligned with the rest of the Bay Area, buyers will look further out. If there's one thing that the Bay Area population demonstrates on a daily basis it's that it has no problem with ridiculously long and frustrating commutes.
I am also doing what Troy is doing for the market I am in. This is a great way to as objectively as possible asses the situation. It is MUCH cheaper to rent. Money saved and all that.
Also not being tacked down to a large depreciating asset bought with leverage might be quite valuable salary-wise in the coming years.
Robert Coté, Let me see if I can add starts to that chart.
JD, 8.5% is the median for the last few years. But those seem exceptional when looking at a longer term chart. You'd have to argue that there has been a fundamental change in homebuying habits - as opposed to just manic buying and selling (more likely IMO).
When I was in the business of using these sorts of statistics, I'd always try to find the seasonally unadjusted numbers to use as a check on the adjustment process.
The NAR's pending home sales report has been home to some adjustment alligators, but the existing home sales report lacks the data to do the check. The NAR's website (conveniently?) offers no deeper historical numbers.
CR, by chance have you saved the NAR's prior spreadsheets that accompany these press releases? I'd love to have a look at a time series of the raw data, along with a time series of the adjusted numbers. Not that the NAR would ever fiddle with the adjustments. Oh, no. Never.
Economic Crisis, I questioned the NAR's SA method before - and it ends up they use a standard package (no problem), but there are some adjustments for weekends that I think they might goof up a little - no big deal.
I graphed the NSA data in the previous post. I think it is always useful to look at the data both ways (except for really radical seasonal adjustment, like employment).
Remember that the existing sales numbers are not adjusted for housing stock increases. "Flat sales" by the NAR methodology is a decrease in the portion of homes that actually sell. The real danger in seasonal adjustments is in changes to method. For instance, Dataquick in Feb revised their methods so as to report ~10% more transactions than with their prior method. Not a subtle difference.
"JD, 8.5% is the median for the last few years. But those seem exceptional when looking at a longer term chart. You'd have to argue that there has been a fundamental change in homebuying habits - as opposed to just manic buying and selling (more likely IMO)."
And I agree. The increased level of activity was almost certainly due to abundant easy and cheap credit, not secular trends...
What percentage of these sales are foreclosures? Since speculators have exited it would seem like foreclosures could be a significant portion of these sales.
CR, Since we are now well into the bear market in housing will you be preparing charts on things relating to defaults and foreclosures, here or in your newsletter. Some ideas that may be of interest:
% of defaults ending up in FC
% of REO sales vs owner sales
"Total existing-home sales including single-family, townhomes, condominiums and co-ops rose 0.4 percent" and Lawrence Yun, NAR chief economist, said the market appears to be stabilizing."
.4% is statistically insignificantand shows nothing. Anyone who got through Statistics 101 in grad school knows that!
Doesn't he ever get tired of publicly humilating himself?
Risk, I love your article. I have been writing this stuff for a few years on the Prudent Bear board and it seems to go right by people. Somehow, the post 1995 period has been adopted as history for housing when in fact it was all bubble territory. Your chart on the percentage of existing home turnover is one I haven't seen, but describes to me easily what I have been trying to convey to others. I cut my post college teeth in the home market in DFW in the late 1970's and went through a rough housing bust. I have been laughing every time they discuss a bottom on CNBC because I waited for 1 to happen for 10 years. 1977 and 1978 were, unfortunately for me, watershed years and the bubble blew them away. I think 6% as a median is going to be generous. 1982 hit under 4% and 6% became a top from 1979 to 1995 following the last housing bubble. Resale inventory could hit well over a year before we are done and the new home market will continue to undermine the used market. Realtors and mortgage brokers are in for a rough time, I know having been both.
I see all the 'bears' disagree with my 8.5% ' current normalized market' number. Well I have made my prediction for 2008 home sales, we will see who was right at the end of 2008.
Thanks for the response, CR. I had overlooked the label on the graph.
I went back and eyeballed the graph and saw that this year's NSA decline from October to November was 7.1% compared to 7.8% in 2006.
However, given that the mini-panics in this year's market in August and September might have inflated October and November sales that otherwise would have taken place earlier, I thought a good check on the numbers would be to compare unadjusted November-06/July-06 to unadjusted November-07/July-07.
By taking the last full month before the August 2007 seize-up, and using November of 2007 because by then the seize-up had relaxed at least for a while, we could get a better sense of what's going on behind the extraodinary events that can skew the statistics.
And to give a check on the 2006 numbers to see if anything might have been unusual there, I did the same comparison for 2005.
In 2005, existing home sales in November were 23% lower than they were in July of that year.
In 2006, existing home sales in November were 22% lower than they were in July of that year.
In 2007, existing home sales were 31% lower than they were in July of that year.
My conclusion: For the NAR to be presenting the November 2007 number as some sort of bottoming out is ridiculous. Obviously, the NAR's economist has long since lost his credibility. But then they ARE the real estate lobby. Their job is to tell people that now has never been a better time to buy.
Anyway, I love your blog. I have, uh, some "friends in high places," and I guarantee you (and everyone else) that Calculated Risk gets a lot of attention up there in the clouds. Keep up the good work. Someone has to tell the truth. Might as well be you.
By the way, let me point something else out. I could put it in the comments to your post above this one, but I'll put it here because this really belongs all in one place even if I'm commenting on two different postings.
You wrote in the other posting that on a Not Seasonally Adjusted basis, November sales were slightly below October sales. Yes, but that's always the case, because home sales decline toward the end of the year even in a good year.
The question was whether or not NAR tweaked the adjustment factor to exaggerate the November seasonally-adjusted "improvement." There was reason to ask that question, because they tweaked the adjustment factor when they released the October pending sales report. At that time, they said that seasonally adjusted pending sales had risen, but a look into the numbers showed that if they'd used the same adjustment factor in '07 that they used in '06, seasonally adjusted pending sales would have fallen. Which matters because the NAR is grasping at straws these days. Let 'em grasp, but they don't get to change the straw-measuring yardstick.
Anyway, for existing home sales, they actually DID rise on a seasonally adjusted basis in November 2007. Or, to put it differently, the adjustment factor didn't change.
However, there's good reason to believe that the "improvement," slight as it was, is because of a rebound effect from a return to "normal" (or at least "unpanicked") lending conditions after the August-September crunch. If you use stats that don't include the "panic months" of August, September or October for comparison, you can see that things are not getting better.
Even that method (comparing November to July) overstates the current health of the market, because while we've eliminated a month-to-month comparison (November to October) we're still using what's probably an inflated November. If we were able determine how many of November's sales would have occurred in October or September but for the mini-panic, and back them out, then we'd have gotten a truer (and yet grimmer) picture of current conditions.
Whew!!! Glad to hear the housing market is stabilizing. For a while there, I thought we were in trouble.
Yun's comments on real estate are like Cheney's comments on the beach party in Iraq.
_
Currently 6% of owner occupied units would be about 4.6 million existing home sales per year. This indicates that the turnover of existing homes - November sales were at a 5.0 million Seasonally Adjusted Annual Rate (SAAR) - is still above the historical median.
This suggests sales will fall much further in 2008.
One thing the local paper pointed out (anecdotally) is that "everybody who needed a home bought one during the boom, so there's no buyers left in the market".
I think there's merit to the idea that we have pent-up anti-demand that could take us far below historic turnover rates.
ac, all the data suggests - at least to me - that we will see falling sales in 2008. I'm still working on my forecast, but I think 4.6 million units in '08 would be a good year for existing home sales under the circumstances. Heck, even a decline to 5% of owner occupied units, or around 3.8 million, is possible (although housing usually has a lot of momentum that takes some time to break).
It will probably seem like "Pent-up anti-demand"!
Best Wishes.
Single family New Starts are down 60% y-o-y. And let's face it a large percentage of the permits pulled in 06-07 are going to expire.
CR, Could we overlay the referenced data on the first graph?
ac,
Interesting to see that thought out in your local media, that concept seems underexplored - how much demand was pulled forward in the RE runup - and of those left to purchase, who has the balance sheet strength to qualify?
If they couldn't qualify previously, that seems more of a stretch now and if they held off in the runup, they would seem to be waiting for the price declines...which have yet to begin in earnest in many areas.
Today's Greenspan Award goes to:
Jackie Castleberry won't be playing Santa Claus this year.
She usually buys her grandchildren, nieces and nephews lots of gifts around the holidays -- bicycles, educational games, clothes -- but this year she is just struggling to keep her North Las Vegas, Nevada, house.
The interest rate on her four-bedroom home loan shot up in October and she is $6,000 behind on her payments. She now owes $168,000 on her home, which once was worth $220,000 but is now worth about $150,000.
In the past, when times were tough, she would borrow against her home's equity -- that's no longer possible. possible.
--CNN
I'm not sure if this has been mentioned elsewhere here, but there's a rumor circulating today that National City has closed its wholesale lending division.
Maybe we'll get an official announcement after the markets close.
I love your charts. But I still don't agree with your use of the 6% historical mean as a benchmark for a normalized 2007/2008 market. I think the current normalized benchmark is around 8.5%, but that is just my opinion.
Interesting to see that thought out in your local media, that concept seems underexplored - how much demand was pulled forward in the RE runup - and of those left to purchase, who has the balance sheet strength to qualify?
IIRC it was a disenchanted real estate agent essentially suggesting that she'd already sold a house to everyone she knew.
Where I work there are a lot of younger people straight out of college with good incomes that can handle a mortgage payment right out of the gate.
I really saw the buying panic up close and personal with these guys -- they would cringe and yelp every time they heard that house prices had surged yet again, and there was a very real fear of getting "priced out forever".
It was like trying to hold a dog back when he sees a friendly pack running through the street.
Needless to say a lot of them jumped in and bought houses right at the peak. Now that prices are beginning to fall sharply, there's almost nobody in my office in the position to capitalize on the situation.
WITH ONE NOTABLE EXEPTION.
Everything about RE seems to be falling...except prices!!!
5-10% down from houses that increased 100-150% in 5 years, is not that much of a sell-off.
When do think that mortgage problems, consumer spending, increased inventory and lower sales will have an effect on prices? Will prices return to '99-'00 before the run up?
The new and existing home sales graph does not look like a 'typical' speculative bubble. Otherwise, the new home sales plot would have already leveled out. This is troublesome. But what do I know! Keep up the great work CR.
MikeTurn
it's tough to use historical trends to predict the future in these very un-historical times. i've seen properties that would normally be taken off the market for the holidays remain on due to this fact.
JD,
Is it possible that you are conflating home sales and mortgage originations (sales plus refis)? 8.5% per year turnover would imply an average holding period of 12 years versus 16 for a 6% turnover. Seems too short.
Repoman: I've lived two bubbles: the LA one 1989-1992, and Tokyo 1992-2000.
The pattern in both cases was just a slow erosion of prices year after year. Tokyo finally bottomed out just last year, LA started to pick up around 2000-2001 from loose coupling with the Bay Area's dotcom market buzz.
The significant tax cuts of 2001-2003 (putting ~$300/mo in the median buyer's pocket) and the interest rate drops 2002-2004 pushed up prices another $100,000 ~ $200,000 across the board.
Prices will in the global react to interest rates, but they rocket up and drift down. The strongest determinant of prices (in non-insane lending environments) is local incomes. Here in the S SF Bay Area, ceteris paribus, I think we'll only see the 2005-2006 speculative blowoff worked off, not the dotcom gains, due to the relatively strong employment situation and tremendous number of Indian families who are ready and willing to buy into the American Dream.
ac,
how would one capitalize in this environment... with the most vibtrant minds forcasting continued declines in prices?
the Rub: wait a bit, and buy at the bottom.
IMHO 2008 may be the year of 'Is it too late to sell?' when more people realize this run-up was a once-in-a-lifetime event.
There are still alot of folks sitting on tons of equity planning to cash in and take advantage of the $250k/$500k tax break, who will be watching prices fall and doing back-of-the-envelope calcs in that regard. In the 1990's there were also alot of deeds-of-trust offered by these types of owners who wanted to sell and get a steady income, particularly those who no longer had a mortgage and had owned for 20+ years.
These folks may want to get out by lowering the price before their nest egg evaporates. Sales numbers may only dip slightly or hold steady when considering this and the increasing volume of distressed sales.
Not DH
CR & community,
This seems another data point worthy of discussion - defaults on privately insured mortgages - also, though not explored in the Bloomberg link below the cure rate for defaults is not looking good...
Defaults on Insured Mortgages Rise 35% to Record (Update3)
By Josh P. Hamilton and Erik Holm
Dec. 31 (Bloomberg) -- Defaults on privately insured U.S. mortgages rose 35 percent in November to a record, an industry report today showed, adding to evidence the U.S. housing slump is deepening.
[snip]
My prediction for existing housing units sold in 2008 is 5.6 million (7.3%).
Can anyone here point me to some San Francisco specific data? My brother in law is about to buy a condo in SF (right in the city) and I was urging him to wait for prices to go down. He says there have been big drops in outlying areas, but not in the city itself - and he thinks perhaps prices will never drop in that area. But I am thinking "I bet a lot of those condos were bought with option ARMs and there is a serious foreclosure risk." So I'd like to know more about the area.
Homebuilders edge up....
Business Week Online > File Not Found
OT but fun...Some distinct parallels with the mortgage world.
Easy Credit Car Loans: The Perfect Storm Gathers | The Truth About Cars
Sorry, I can't remember the html syntax for embedding a link...
The 6% long-term average of turnover may have increased a bit because of the $250/500K cap gains exemption that started in 1997 (or 1998?). Eliminating that "cost" for most people makes moving more appealing (though it inflates prices at the same time).
Of course, even if the long-term average is now 7%, there is no reason a yearly number can't undershoot the average.
That mortgage pig keeps cracking me up. Is it true her name is Morticia?
how would one capitalize in this environment
Here's what I'm doing...
I'm watching the large-ish condo development I want to live in, which is about 5 miles from where I rent, on the online mls.
I'm tracking in a spreadsheet every unit listed, its price drops, and when it is delisted or sold.
I will buy when there's any positive traction in prices, or the rent I'm paying forces me out (last year I got jacked with a 10% rate increase).
I've also created a spreadsheet where I plug in purchase price and loan interest rate, and it tells me the after-tax total cost of purchase on a monthly basis (eg. a $400k condo with 5% down @ 6.25% has a monthly carrying cost of $2050. . . my rent is $500 less than that, so buying in this down market isn't an attraction, yet).
I think the increasing use of the word "unprecedented" makes the price trajectory difficult to predict. It is difficult for me to imagine it surprising to the price upside.
Credit normalized to GDP has been expanding since the early 80s.
Man oh man. This really could be epic.
Is it true her name is Morticia?
Nope. That's an Internet Urban Legend that someone around here is trying to start.
Its name is Mortgage Pig(tm).
Emma Anne: San Francisco proper - where I am - is the very heart of denial. It will be a while before a correction settles in.
However, as prices in the Fortress become increasingly misaligned with the rest of the Bay Area, buyers will look further out. If there's one thing that the Bay Area population demonstrates on a daily basis it's that it has no problem with ridiculously long and frustrating commutes.
I am also doing what Troy is doing for the market I am in. This is a great way to as objectively as possible asses the situation. It is MUCH cheaper to rent. Money saved and all that.
Also not being tacked down to a large depreciating asset bought with leverage might be quite valuable salary-wise in the coming years.
Some data to make the folks in CA feel good HERE
Robert Coté, Let me see if I can add starts to that chart.
JD, 8.5% is the median for the last few years. But those seem exceptional when looking at a longer term chart. You'd have to argue that there has been a fundamental change in homebuying habits - as opposed to just manic buying and selling (more likely IMO).
Best to all
When I was in the business of using these sorts of statistics, I'd always try to find the seasonally unadjusted numbers to use as a check on the adjustment process.
The NAR's pending home sales report has been home to some adjustment alligators, but the existing home sales report lacks the data to do the check. The NAR's website (conveniently?) offers no deeper historical numbers.
CR, by chance have you saved the NAR's prior spreadsheets that accompany these press releases? I'd love to have a look at a time series of the raw data, along with a time series of the adjusted numbers. Not that the NAR would ever fiddle with the adjustments. Oh, no. Never.
how would one capitalize in this environment... with the most vibtrant minds forcasting continued declines in prices?
the Rub | 12.31.07 - 2:11 pm
Apply for a job at a real-estate law office w/ an equity position.
Not DH
Economic Crisis, I questioned the NAR's SA method before - and it ends up they use a standard package (no problem), but there are some adjustments for weekends that I think they might goof up a little - no big deal.
I graphed the NSA data in the previous post. I think it is always useful to look at the data both ways (except for really radical seasonal adjustment, like employment).
Best Wishes.
Remember that the existing sales numbers are not adjusted for housing stock increases. "Flat sales" by the NAR methodology is a decrease in the portion of homes that actually sell. The real danger in seasonal adjustments is in changes to method. For instance, Dataquick in Feb revised their methods so as to report ~10% more transactions than with their prior method. Not a subtle difference.
"JD, 8.5% is the median for the last few years. But those seem exceptional when looking at a longer term chart. You'd have to argue that there has been a fundamental change in homebuying habits - as opposed to just manic buying and selling (more likely IMO)."
And I agree. The increased level of activity was almost certainly due to abundant easy and cheap credit, not secular trends...
What percentage of these sales are foreclosures? Since speculators have exited it would seem like foreclosures could be a significant portion of these sales.
CR, Since we are now well into the bear market in housing will you be preparing charts on things relating to defaults and foreclosures, here or in your newsletter. Some ideas that may be of interest:
% of defaults ending up in FC
% of REO sales vs owner sales
"Total existing-home sales including single-family, townhomes, condominiums and co-ops rose 0.4 percent" and Lawrence Yun, NAR chief economist, said the market appears to be stabilizing."
.4% is statistically insignificantand shows nothing. Anyone who got through Statistics 101 in grad school knows that!
Doesn't he ever get tired of publicly humilating himself?
Maybe Yun is right.
Isn't freefall a form of stabilization?
Feet/(second^2)
No, it's stabilized when you've reached terminal velocity.
Risk, I love your article. I have been writing this stuff for a few years on the Prudent Bear board and it seems to go right by people. Somehow, the post 1995 period has been adopted as history for housing when in fact it was all bubble territory. Your chart on the percentage of existing home turnover is one I haven't seen, but describes to me easily what I have been trying to convey to others. I cut my post college teeth in the home market in DFW in the late 1970's and went through a rough housing bust. I have been laughing every time they discuss a bottom on CNBC because I waited for 1 to happen for 10 years. 1977 and 1978 were, unfortunately for me, watershed years and the bubble blew them away. I think 6% as a median is going to be generous. 1982 hit under 4% and 6% became a top from 1979 to 1995 following the last housing bubble. Resale inventory could hit well over a year before we are done and the new home market will continue to undermine the used market. Realtors and mortgage brokers are in for a rough time, I know having been both.
I see all the 'bears' disagree with my 8.5% ' current normalized market' number. Well I have made my prediction for 2008 home sales, we will see who was right at the end of 2008.
Thanks for the response, CR. I had overlooked the label on the graph.
I went back and eyeballed the graph and saw that this year's NSA decline from October to November was 7.1% compared to 7.8% in 2006.
However, given that the mini-panics in this year's market in August and September might have inflated October and November sales that otherwise would have taken place earlier, I thought a good check on the numbers would be to compare unadjusted November-06/July-06 to unadjusted November-07/July-07.
By taking the last full month before the August 2007 seize-up, and using November of 2007 because by then the seize-up had relaxed at least for a while, we could get a better sense of what's going on behind the extraodinary events that can skew the statistics.
And to give a check on the 2006 numbers to see if anything might have been unusual there, I did the same comparison for 2005.
In 2005, existing home sales in November were 23% lower than they were in July of that year.
In 2006, existing home sales in November were 22% lower than they were in July of that year.
In 2007, existing home sales were 31% lower than they were in July of that year.
My conclusion: For the NAR to be presenting the November 2007 number as some sort of bottoming out is ridiculous. Obviously, the NAR's economist has long since lost his credibility. But then they ARE the real estate lobby. Their job is to tell people that now has never been a better time to buy.
Anyway, I love your blog. I have, uh, some "friends in high places," and I guarantee you (and everyone else) that Calculated Risk gets a lot of attention up there in the clouds. Keep up the good work. Someone has to tell the truth. Might as well be you.
By the way, let me point something else out. I could put it in the comments to your post above this one, but I'll put it here because this really belongs all in one place even if I'm commenting on two different postings.
You wrote in the other posting that on a Not Seasonally Adjusted basis, November sales were slightly below October sales. Yes, but that's always the case, because home sales decline toward the end of the year even in a good year.
The question was whether or not NAR tweaked the adjustment factor to exaggerate the November seasonally-adjusted "improvement." There was reason to ask that question, because they tweaked the adjustment factor when they released the October pending sales report. At that time, they said that seasonally adjusted pending sales had risen, but a look into the numbers showed that if they'd used the same adjustment factor in '07 that they used in '06, seasonally adjusted pending sales would have fallen. Which matters because the NAR is grasping at straws these days. Let 'em grasp, but they don't get to change the straw-measuring yardstick.
Anyway, for existing home sales, they actually DID rise on a seasonally adjusted basis in November 2007. Or, to put it differently, the adjustment factor didn't change.
However, there's good reason to believe that the "improvement," slight as it was, is because of a rebound effect from a return to "normal" (or at least "unpanicked") lending conditions after the August-September crunch. If you use stats that don't include the "panic months" of August, September or October for comparison, you can see that things are not getting better.
Even that method (comparing November to July) overstates the current health of the market, because while we've eliminated a month-to-month comparison (November to October) we're still using what's probably an inflated November. If we were able determine how many of November's sales would have occurred in October or September but for the mini-panic, and back them out, then we'd have gotten a truer (and yet grimmer) picture of current conditions.