This rise in inventory is bad, bad news. The small rise in sales doesn't suprise me - I was beginning to expect some discount buying, but the rise in inventory does.
I think the steady drumbeat of price declines and articles like this are going to start getting to homebuyers.
A short burst of price decline reports is one thing - it could stimulate discount buying. But when the "discount buyers" start losing money too and the reports of price declines keep coming, a deflationary mentality could set in.
A huge and rising level of inventory going into the slow season is a worst case scenario IMO. Especially with foreclosures on the rise.
That said, I think the new home sales report tomorrow might, superficially, not look so bad. We'll see.
On Bloomberg yesterday this guy named Brian Stine of Allegiant Capital said that he was worried that soon we would have a "housing shortage." No lie...he said because starts and permits have been down he is worried about a housing shortage. That is THE most optimistic forecast I have heard yet. Seven months of inventory means nothing to him.
Dont forget the 3.5% yoy decline in prices, third month in a row for declines. That's what will really get the people's attention.
Also, think about all the pulled listings. So many of the "savvy" sellers now, the ones who think theyve understood RE a long time, are doing the, pull it and relist in the spring thing. I had numerous conversations with them over the holiday. Funny thing was, not one went the extra step of thinking, hey, what if Im not the only one doing that. So I asked each, how do you expect prices to rise in the spring when there will be even more homes for the few buyers to choose from, and when prices are still heading down through the winter, how do they expect that any of the speculative interest will return?
And, with affordability even worse than the officially rigged numbers and credit likely to tighten, where are non spec buyers going to come from?
And with foreclosures rising rapidly, what will that do to inventory.
Let me just say, it was rather amusing watching the blank stares.
It had seemed, from reading all the regional reports, that sales for October may have ticked up.
But, like you, I'm very surprised about the inventory number. By all rights, that SHOULD have fallen, given this is the season when discouraged sellers pull their listings hoping for a spring rebound.
OCrenter keeps a good blog that tracks inventory for most of the major CA markets, and October numbers show a gradual inventory decrease. I had figured that the rest of the nation would be following suit. Guess not.
But when the "discount buyers" start losing money too and the reports of price declines keep coming, a deflationary mentality could set in.
ac - I'm not that down beat.
First off I think we will see a big shift away from direct speculation (the buy-n-sell flipping we've seen the last few years) to a more traditional buy-n-hold-n-live-in home buying model... I think a lot of the flippers will churn out over the next few quarters (they probably all wish they were already out but that's another matter).
But most folks who buy a house to live in don't consider themselves 'losing money' even if prices drop in their neighborhood some UNLESS they are getting close to selling again. In a buy-n-hold situation that doesn't happen so much.
I think we'll see some pretty panicky sellers the next few quarters... those with toxic ARMs resetting & the remaining exposed flippers... but then settle in for a more gradual bear hibernation (slow decline in prices but far fewer transactions).
Of course CR's 'eight month' inventory rule might alter that... but I'd still bet on a more gradual & paced decline. JMHO.
Remember, month's supply is based on the current sales rate. There looks to be ample potential for the sales rate to slow, and plenty of upside on actual inventory as well, so my guess is we could see 10 months supply in the spring easy, especialy if prices continue the current trend, which looks probable.
Let's not forget the 7.4 months doesn't include past deals that fell through. So we may already be close to or over 8 months.
Banks are tightening credit and some are even saying that they have zero visibility. HSBC to name one and they've been aggressive in the sub prime sector.
This is a slow train wreck but as of right now we're at the denial stage. Would be buyers may sit back and wait even if they have the cash to buy.
bob, New Home sales is the more interesting number for me - the impact of falling (or rising) New Home sales has a more significant impact on the economy. Of course, if the report tomorrow follows the recent pattern, the number will be higher than last month ... and then be revised down.
ac, I agree - for Existing Homes the inventory is BAD. I expect existing home sales to fall next year - and inventory to be well over the 8 month level.
CR,
Yes, new home sales are more interesting but I am concerned about hedonistic distortions. Anecdotatally I'm seeing more and more new sales loaded with incentives; kitchen appliances, pools, landscape allowances, etc. Your point about the multiplier effects of new home construction is important. Could it be that after years of monster growth/profitability that the industry is keeping their people on through the holidays burning the last of their fat? If so the employment may stay high until it runs off a cliff.
Did you see however? Sept sales were revised upward. One time abberation? Roubini on the financial entertainment channel just said as much. Am I wrong about systemic bias? Are the data only biased at inflection points (change in trend direction)?
Inventory. That it isn't falling is a negative. Here in SoCal there isn't really a spring selling season except for the distinct communities; beaches, mountains. I get the impression that there is building behind the reported inventory a second tier of inventory that hasn't listed because agents are discouraging listing and the would-be sellers are doing all the things necessary to make their house stand out; declutter, fix up, landscape, etc.
The status associated with being a
"homeowner" is a strong motive in the American mindset. Seems like once j6P gets infected with a buyer virus the only way to cure them is to cut off the funding.
"While the front page of its website blares that it's a great time to buy a home, seemingly in contradiction to the endless stream of negative press about how housing is crashing whether it actually is or not, the National Association of Home Builders commissions a study to find out if the press indeed is behind buyers' reluctance to buy a new home. "
Of course, we also have to allow for the possibility data is manipulated. It is not in the job description of industry trade groups such as NAR or DQ to be perceived as bastions of impartiality.
We track DQ sales in Silicon Valley & find several recent reports are inconsistent with their own data.
I was going to wait and buy in Apr/May, but the right house in the right neighborhood had a sign in the yard, just signed contract to buy for $196k, seller purchased it in Aug 2003 for $201k and added a nice Hybrid HVAC system....and we have a decent market her in Lexington KY.
I was going to wait and buy in Apr/May, but the right house in the right neighborhood had a sign in the yard, just signed contract to buy...
Hey if you can afford it & you have to live somewhere, why not buy it?
But before you decide the market in Lexington in 'decent'... ask the guy you just bought from his opinion... he might tell you it is a couple thousand bucks and a nice HVAC system short of 'decent'.
I ran into a neighbor a week or so ago who I thought had moved, but it turned out he had taken his house off the market because he couldn't get the money he wanted for it. My husband talked to another neighbor who had also tried to sell and then decided to wait, as well.
Interestingly, the neighbor I talked with and his wife own their house jointly with another couple, since it seemed the only way they could afford one. He mentioned another house on our block which is owned by 5 co-tenants, as well.
It really says something about the housing market in the Boston area that this is one way people have been managing to keep purchasing houses. And it makes me wonder how much profit you need to see in the housing market to make it worth dividing it up 5 ways.
My answer -- we only have National Association of Realtors' price data going back to 1968 or so. And that's only for single family, not single-family + condos. NAR started reporting combined (SFH+condo+co-op) more recently. So the 3%+ decline in existing single-family homes YOY is the worst, according to the records going back to 1968. Were there probably bigger declines in the Great Depression or in other periods of economic stress? Sure. But we don't have reliable stats for that. Hope that clears things up.
Caver commented: On Bloomberg yesterday this guy named Brian Stine of Allegiant Capital said that he was worried that soon we would have a "housing shortage." No lie...he said because starts and permits have been down he is worried about a housing shortage.
Seriously, where do they find these "experts"? Clearly, Mr Brian Stine has not driven past any new developments at 10 pm and seen all the dark windows with no signs of life. Clearly, when this Stine guy adds 2+2 he gets 3. I wouldn't call that an optimistic forecast. Stupid, yes. Optimistic, no.
Is the ever-increasing inventory perhaps related to the fact that our market is awash in flippers? Homeowners can afford to sit tight and see how things play out; flippers usually can't.
What do you think about tomorrow release, new home sales?
It should be worse than existing home sales, and prices must be down, right?
I think I will keep the finger on the button and will short the whole market at 10 am if I see bad numbers.
This rise in inventory is bad, bad news. The small rise in sales doesn't suprise me - I was beginning to expect some discount buying, but the rise in inventory does.
I think the steady drumbeat of price declines and articles like this are going to start getting to homebuyers.
A short burst of price decline reports is one thing - it could stimulate discount buying. But when the "discount buyers" start losing money too and the reports of price declines keep coming, a deflationary mentality could set in.
A huge and rising level of inventory going into the slow season is a worst case scenario IMO. Especially with foreclosures on the rise.
That said, I think the new home sales report tomorrow might, superficially, not look so bad. We'll see.
On Bloomberg yesterday this guy named Brian Stine of Allegiant Capital said that he was worried that soon we would have a "housing shortage." No lie...he said because starts and permits have been down he is worried about a housing shortage. That is THE most optimistic forecast I have heard yet. Seven months of inventory means nothing to him.
Dont forget the 3.5% yoy decline in prices, third month in a row for declines. That's what will really get the people's attention.
Also, think about all the pulled listings. So many of the "savvy" sellers now, the ones who think theyve understood RE a long time, are doing the, pull it and relist in the spring thing. I had numerous conversations with them over the holiday. Funny thing was, not one went the extra step of thinking, hey, what if Im not the only one doing that. So I asked each, how do you expect prices to rise in the spring when there will be even more homes for the few buyers to choose from, and when prices are still heading down through the winter, how do they expect that any of the speculative interest will return?
And, with affordability even worse than the officially rigged numbers and credit likely to tighten, where are non spec buyers going to come from?
And with foreclosures rising rapidly, what will that do to inventory.
Let me just say, it was rather amusing watching the blank stares.
Agree with you, ac.
It had seemed, from reading all the regional reports, that sales for October may have ticked up.
But, like you, I'm very surprised about the inventory number. By all rights, that SHOULD have fallen, given this is the season when discouraged sellers pull their listings hoping for a spring rebound.
OCrenter keeps a good blog that tracks inventory for most of the major CA markets, and October numbers show a gradual inventory decrease. I had figured that the rest of the nation would be following suit. Guess not.
But when the "discount buyers" start losing money too and the reports of price declines keep coming, a deflationary mentality could set in.
ac - I'm not that down beat.
First off I think we will see a big shift away from direct speculation (the buy-n-sell flipping we've seen the last few years) to a more traditional buy-n-hold-n-live-in home buying model... I think a lot of the flippers will churn out over the next few quarters (they probably all wish they were already out but that's another matter).
But most folks who buy a house to live in don't consider themselves 'losing money' even if prices drop in their neighborhood some UNLESS they are getting close to selling again. In a buy-n-hold situation that doesn't happen so much.
I think we'll see some pretty panicky sellers the next few quarters... those with toxic ARMs resetting & the remaining exposed flippers... but then settle in for a more gradual bear hibernation (slow decline in prices but far fewer transactions).
Of course CR's 'eight month' inventory rule might alter that... but I'd still bet on a more gradual & paced decline. JMHO.
Remember, month's supply is based on the current sales rate. There looks to be ample potential for the sales rate to slow, and plenty of upside on actual inventory as well, so my guess is we could see 10 months supply in the spring easy, especialy if prices continue the current trend, which looks probable.
Let's not forget the 7.4 months doesn't include past deals that fell through. So we may already be close to or over 8 months.
Banks are tightening credit and some are even saying that they have zero visibility. HSBC to name one and they've been aggressive in the sub prime sector.
This is a slow train wreck but as of right now we're at the denial stage. Would be buyers may sit back and wait even if they have the cash to buy.
bob, New Home sales is the more interesting number for me - the impact of falling (or rising) New Home sales has a more significant impact on the economy. Of course, if the report tomorrow follows the recent pattern, the number will be higher than last month ... and then be revised down.
ac, I agree - for Existing Homes the inventory is BAD. I expect existing home sales to fall next year - and inventory to be well over the 8 month level.
Best to all.
CR,
Yes, new home sales are more interesting but I am concerned about hedonistic distortions. Anecdotatally I'm seeing more and more new sales loaded with incentives; kitchen appliances, pools, landscape allowances, etc. Your point about the multiplier effects of new home construction is important. Could it be that after years of monster growth/profitability that the industry is keeping their people on through the holidays burning the last of their fat? If so the employment may stay high until it runs off a cliff.
Did you see however? Sept sales were revised upward. One time abberation? Roubini on the financial entertainment channel just said as much. Am I wrong about systemic bias? Are the data only biased at inflection points (change in trend direction)?
Inventory. That it isn't falling is a negative. Here in SoCal there isn't really a spring selling season except for the distinct communities; beaches, mountains. I get the impression that there is building behind the reported inventory a second tier of inventory that hasn't listed because agents are discouraging listing and the would-be sellers are doing all the things necessary to make their house stand out; declutter, fix up, landscape, etc.
The status associated with being a
"homeowner" is a strong motive in the American mindset. Seems like once j6P gets infected with a buyer virus the only way to cure them is to cut off the funding.
Well if it does fall, its your fault blogger.
"While the front page of its website blares that it's a great time to buy a home, seemingly in contradiction to the endless stream of negative press about how housing is crashing whether it actually is or not, the National Association of Home Builders commissions a study to find out if the press indeed is behind buyers' reluctance to buy a new home. "
Realty Times - National Association of Home Builders Mixes Messages About Media Interference With Home Buyers
Blame the press.
"Overall prices are projected to see modest appreciation around early spring," Lereah said.
I think Lereah will prove to be right in the spring. Overall prices will sustain a slight bump in the spring.
But, this will happen after many more months of price drops, so it won't make any difference at all.
This basically means that Lereah still scores pretty low on the prophecy scale, and pretty high on the B.S. scale.
One article says that the drop of 3.5% is the biggest drop on record.
"The previous record drop was a 2.1 percent decline in November 1990, the real estate group said."
this
QUESTION: what does it mean biggest on record?
How fast prices dropped during Great Depression? Did we beat that already?
Of course, we also have to allow for the possibility data is manipulated. It is not in the job description of industry trade groups such as NAR or DQ to be perceived as bastions of impartiality.
We track DQ sales in Silicon Valley & find several recent reports are inconsistent with their own data.
Please see, "Something seems fishy..." at:
http://www.viewfromsiliconvalley.com/id276.html
The latest Silicon Valley trends are evident in,
"The Last 30 days (Nov'06 edition)" at:
http://www.viewfromsiliconvalley.com/id281.html
Thanks!
I was going to wait and buy in Apr/May, but the right house in the right neighborhood had a sign in the yard, just signed contract to buy for $196k, seller purchased it in Aug 2003 for $201k and added a nice Hybrid HVAC system....and we have a decent market her in Lexington KY.
Well if it does fall, its your fault blogger.
LOL. Wear the mantle like a medal, CR!!
::::::
I was going to wait and buy in Apr/May, but the right house in the right neighborhood had a sign in the yard, just signed contract to buy...
Hey if you can afford it & you have to live somewhere, why not buy it?
But before you decide the market in Lexington in 'decent'... ask the guy you just bought from his opinion... he might tell you it is a couple thousand bucks and a nice HVAC system short of 'decent'.
... think about all the pulled listings.
I ran into a neighbor a week or so ago who I thought had moved, but it turned out he had taken his house off the market because he couldn't get the money he wanted for it. My husband talked to another neighbor who had also tried to sell and then decided to wait, as well.
Interestingly, the neighbor I talked with and his wife own their house jointly with another couple, since it seemed the only way they could afford one. He mentioned another house on our block which is owned by 5 co-tenants, as well.
It really says something about the housing market in the Boston area that this is one way people have been managing to keep purchasing houses. And it makes me wonder how much profit you need to see in the housing market to make it worth dividing it up 5 ways.
He mentioned another house on our block which is owned by 5 co-tenants, as well.
Sounds like a popular sit-com... any of them pregnant yet?
QUESTION: what does it mean biggest on record
My answer -- we only have National Association of Realtors' price data going back to 1968 or so. And that's only for single family, not single-family + condos. NAR started reporting combined (SFH+condo+co-op) more recently. So the 3%+ decline in existing single-family homes YOY is the worst, according to the records going back to 1968. Were there probably bigger declines in the Great Depression or in other periods of economic stress? Sure. But we don't have reliable stats for that. Hope that clears things up.
Caver commented: On Bloomberg yesterday this guy named Brian Stine of Allegiant Capital said that he was worried that soon we would have a "housing shortage." No lie...he said because starts and permits have been down he is worried about a housing shortage.
Seriously, where do they find these "experts"? Clearly, Mr Brian Stine has not driven past any new developments at 10 pm and seen all the dark windows with no signs of life. Clearly, when this Stine guy adds 2+2 he gets 3. I wouldn't call that an optimistic forecast. Stupid, yes. Optimistic, no.
LOL, dryfly, but so far as I can tell the co-tenants are all women. There's probably still a sit-com in there somewhere ...
Is the ever-increasing inventory perhaps related to the fact that our market is awash in flippers? Homeowners can afford to sit tight and see how things play out; flippers usually can't.