Existing Home Sales: Not Seasonally Adjusted

Submitted by
CalculatedRisk on Thu, 06/26/2008 - 7:52am (30 comments)
in
Whirr wrote on Thu, 6/26/2008 - 8:27 am

Another factor boosting existing home sales might be real estate associations, a la NJ

Allen C wrote on Thu, 6/26/2008 - 8:38 am

Excellent report as always.

Interesting that new home sales are not following the seasonal pattern. So is this a flat line or perhaps an effective lurch down? We'll find out by September.

wally wrote on Thu, 6/26/2008 - 8:38 am

The downward trend still appears to be accelerating (rapidly accelerating if you'd do any sort of adjustment for foreclosures. Even though they are sales, they also cut out part of the 'normal' market). So: more decreases to come.

BB wrote on Thu, 6/26/2008 - 8:40 am

Gee. I wonder how many New homes the builders are building per month?

Anonymouse wrote on Thu, 6/26/2008 - 8:41 am

Had enough?
Incredulous | 06.26.08 - 12:40 pm |

CR - Please consider this person spam (posted two dozen times in the past two weeks) and banning his IP like you banned Jesus's. Thx.

sdtfs wrote on Thu, 6/26/2008 - 8:45 am

OT- This American Life on NPR is re-broadcasting "The Giant Pool of Money" which is its most downloaded podcast ever. I'm guessing CR had something to do with that.

crispy&cole wrote on Thu, 6/26/2008 - 8:46 am

Maybe its an angry perma-bull... he will go away when his internet get shuts off after he is foreclosed on.

Anon wrote on Thu, 6/26/2008 - 8:49 am

"had enough?"

Yes. I've had enough of this political spam.

Groundhogday wrote on Thu, 6/26/2008 - 8:51 am

There have been persistent rumors that NAR cooks the books on their reports. I don't want to put on a tin-foil hat, but might that be part of the explanation of the separation between new and existing homes? The separation seems to begin before we saw large numbers of foreclosures, so foreclosures might not be completely responsible for this difference.

tranches of like wrote on Thu, 6/26/2008 - 8:51 am

A lot of people thought new home sales would hold up better than existing sales, because builders had more room to cut prices. But now they have to compete against a flood of REOs. So they'll have to cut even more, and pray for lower gas prices. UGLY.

Jes wrote on Thu, 6/26/2008 - 8:57 am

OT
CR, the annoyed spam comments above made me wonder something about how people are using this site. If you update the (very interesting) survey you did just recently, please consider some questions on how people are accessing the site and what else they're doing while they're reading it. (As for me, I'm an engineer and read it for mental refreshment a couple times a day. It gives me fuel to spin stories of impending doom inthe lunchroom). Thanks to you and Tanta for running this site--it's fascinating and I'm learning an awful lot.

AllenM wrote on Thu, 6/26/2008 - 8:58 am

I bet that less than 500k new houses are sold this year, with another build in inventory of higher costs and unsold lots killing the industry by the end of 2009. Nothing to do but watch the first vultures get pulled down into the tar pits along with the prey.

Geez, nice of reos to keep propping up existing home sales!

I notice that here in Arizona, CFC had REDC blow out several hundred homes, and the pipeline of reo was promptly refilled.

I see no bottom in sight given the housing surplus- maybe we should trade houses for oil?

BTW- layoffs have been postponed till January, if necessary. Saved for 6 months!

Someday this war's gonna end...

Ministry of Truth wrote on Thu, 6/26/2008 - 9:00 am

I have to agree Groundhogday, I don't trust the NAR to report the correct numbers. Especailly after the NJ correction.

hopeinsd wrote on Thu, 6/26/2008 - 9:00 am

CR writes:
Clearly new home sales have fallen faster than existing home sales.
\t

I suspect REO resales explain some of the difference (as does location).

Yep- as a general rule, new homes are 1) further out and 2) near a ton of foreclosures the same builders unloaded for record profits in 2006.
Plus- who wants to buy in a brand new neighborhood today? You are likely to be "living in the sticks" for while, and I don't mean trees.

Anon wrote on Thu, 6/26/2008 - 9:07 am

I suspect that location is the more important of the two factors. New homes are usually on the outskirts - the marginal location, only now becoming worth building on. As market prices drop the need to travel so far to own a house diminishes (even without higher gas prices).

I suspect that REO sales are to a large extent redirected purchases that would have occurred anyway, but were attracted to the big discount of the REO deal.

HARM wrote on Thu, 6/26/2008 - 9:11 am

Geez, nice of reos to keep propping up existing home sales!

I wonder if this is really the case, or just another case of dodgy statistics coming from the NAR.

The fact that used-house sales are not falling as fast as new house sales does fly in the face of conventional wisdom around here. Namely, the assumption that builders will usually be able to undercut FB private sales b/c they can afford to.

MD owner wrote on Thu, 6/26/2008 - 9:18 am

FWIW, they are stil selling at a slow but steady rate in my neighborhood. The development is say 60% built out with 17 houses built or under construction in the past 14 months. 6 of those 17 are under construction now in various stages, 1 is a spec. They are being very cautious, prices have come down some, say 8% or so. The "SOLD" sign goes up as soon as the contract is signed but work doesn't start until the contingencies are cleared and the loan is qualified for. So far every one of those completed goes to the original contract signer. Not to say a contract here and there doesn't get canceled but those come before ground is broken. As I said, specs are few and only 1 at a time. They do the specs on the occasional lot which is hard to sell for some minor reason.

This development fits solidly within the GSE caps. The same developer has LOTS of other fancier developments at big premiums and those aren't selling at all...

Terry wrote on Thu, 6/26/2008 - 9:18 am

Anonymouse | 06.26.08 - 12:46 pm |

Agreed.

Derek wrote on Thu, 6/26/2008 - 9:24 am

Another factor is that new subdivisions present a greater risk of home price depreciation than established neighborhoods. Even if the price is lower because of builder's ability to undercut the market, a buyer has to consider the greater risks of depreciation, or even the risk that a builder will go BK or otherwise fail to complete the development.

Half-finished subdivisions were common in Central Texas during the 1980's, as I assume they are now in California, Florida and Nevada.

So price isn't everything. Weighed against the risk of living in an abandoned subdivision for the next 10 years, paying more for an existing home in an established neighborhood makes sense.

nades wrote on Thu, 6/26/2008 - 9:26 am

Great post. Very eloquently clears up a lot of my confusion.... Thanks!

HARM wrote on Thu, 6/26/2008 - 9:38 am

So price isn't everything.

Yeah, my Realturd tells me all that matters is "location, location, location". Wink

All snark aside, I don't get all the hand-wringing over living in/near a half-completed subdivision. Personally, I hate high density neighborhoods anyway, and would welcome a little extra "yard" on both sides. A lot of neighbors are frankly nosy, in-your-business complainers anyhow.

Squatters, homeless moving in next door? As long as they lay off my house, np. Heck, if I lose my job, I may just do the same myself --and why not? An idle, overpriced, rapidly depreciating asset doing what it was designed to do: provide shelter for people who need it. And even better, at a truly 'affordable' price: nothing.

Brautigan wrote on Thu, 6/26/2008 - 11:05 am

I wonder about two other factors:

1) Most of the new homes (at least around here in South Florida) are crap. Zero imagination cookie-cutter McMansions.

More Importantly:

2) While builders probably can undercut private owners, as of yet I see no evidence (around here) that they are willing to. The builders, it seems, are holding out longer at unrealistic asking prices because they can afford to carry the property longer than an individual owner with foreclosure and bankruptcy looming.

Beaver wrote on Thu, 6/26/2008 - 11:09 am

...people buying a new home are coming from an apartment (1st time buyer gets small condo) or from an existing home (established homeowner with equity wants "stay for a long time" brand new house....

people leaving a REO do not buy a new home or an existing in home.....

if 35-40% of existing home sales are foreclosure related sales, then the pool of potential new home buyers is not being increased when these sales are made.....

linear algebra wrote on Thu, 6/26/2008 - 1:04 pm

maybe I'm just cautious, but I'd be deterred from buying a house in a partially completed suburb on the edge of a metropolitan area not only by the gasoline issue and the risk of the build out stalling out, but also by the real possibility that, whenever (if ever?) the build out resumed, whatever is eventually built-out would be way downmarket from the way the project started. A read an interesting article about an architecture professor back East who gives his students tours of pre-WWII neighborhoods where the cleavage between the late 1920s McMansions of that era and the far more modest houses built in the later 30s and early 40s on the unbuilt infill lots is very stark.
OTOH, I'll bet loading REO into the stats is going to have all kinds of revealing implications. For starters, real estate commissions will probably be hit even harder than the decline in sales volumes would suggest. If you're in that line of work, might I suggest dusting off the teacher's certificate or dredging up the nurse's license?

Tom Lawler wrote on Thu, 6/26/2008 - 2:29 pm

Why do you say "I SUSPECT REO sales explain part of the difference" between new and existing home sales, when the hard data show that?

Tom Lawler wrote on Thu, 6/26/2008 - 4:29 pm

You need to expand your coverage a la Lawler Ecnomic & Housing Consulting. Lawler will give away data for free, but Lawler's monthly tracking regionally easilu beats every other tracker by far

Charlie Poole wrote on Thu, 6/26/2008 - 6:46 pm

As I mentioned in a previous thread, no one knows--including the NAR--what proportion of REO sales are picked up in the NAR's existing home sales. The NAR has looked into this but has not come to any conclusions. Therefore, it is appropriate to say you "suspect" REO sales explain part of the difference.

Tom Lawler wrote on Thu, 6/26/2008 - 7:23 pm

DQ reports foreclosure sales in CA as a % of the total. The Sacramento Association of Realtors reports REO sales as a % of the total. There are other sources as well, though admittedly, no nationwide data.

mannfm11 wrote on Thu, 6/26/2008 - 10:43 pm

There is a problem with these numbers. For one, there is a lot of bottom fishing going on and I think the socalled speculator/investor is going to be back in foreclosure before long. I have seen history of existing home sales and 4 million was a ceiling, not a floor for a long time. I am not talking about a period of low population growth and depression, but a boom period with the emergence of the post war baby boom into the housing market. I haven't seen data to indicate we are in a period of massive household formation, so we are still in a bubble. The next stroke is going to be falling rents. I don't buy that the housing industry has washed out until I see something on the order of 3 million annual sales.

rana wrote on Fri, 6/27/2008 - 7:16 am

I think the whole difference is REO. The new home sales do not look that much different than in 1991. They should be higher because there are more households, but this is offset by the expected decline in prices. Existing home sales, are being artificially bumped up by banks selling them to themselves in the foreclosure process, just to get it to REO. And then banks seems to be more wiling to dump inventory--that is depreciating rapidly through lack of care, than are builders.

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