New Home Sales: January 2008

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing continued deterioration of the already hideous falloff in demand for new residential homes both nationally and in every region resulting in an astounding median sales price drop of 15.09%.

On a year-over-year basis new home sales are continuing to weaken, dropping a truly ugly 33.9% below the sales activity seen in January 2007 and plunging a whopping 56.67% since the peak set in July 2005.

It’s important to keep in mind that these declines are coming on the back of the significant declines seen in 2006 and 2007 further indicating the significance of the housing bust.

Additionally, although inventories of unsold homes have been dropping for ten straight months, the sales volume has been declining so significantly that the supply has now reached a new peak value of 9.9 months of supply.

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2008 are coming on top of the 2006 and 2007 results (click for larger versions)


Look at the following summary of today’s report:

National

• The median price for a new home was down 15.09% as compared to January 2007.
• New home sales were down 33.9% as compared to January 2007.
• The inventory of new homes for sale declined 10.1% as compared to January 2007.
• The number of months’ supply of the new homes has increased 37.5% as compared to January 2007 and now stands at 9.9 months.

Regional

• In the Northeast, new home sales were down 16.1% as compared to January 2007.
• In the Midwest, new home sales were down 56.0% as compared to January 2007.
• In the South, new home sales were down 34.8% as compared to January 2007.
• In the West, new home sales were down 10.1% as compared to January 2007.

The Arlington Artifice: October 2007

This recurring monthly post tracks the latest results of the housing market seen in Arlington Massachusetts.

I choose Arlington as a result of the Boston Globe’s recently published and absurdly anecdotal and ludicrous farce about the town’s “hot” housing market.

The ridiculous tone and outright mishandling of the housing data by the Boston Globe “reporter” would almost be comical if it weren’t for the fact that the Globe’s editor, Martin Baron, ALSO blundered seriously when he responded to my email about the discrepancies.

Baron attempted to justify the articles contents and in so doing, he disclosed his poor and obviously unsophisticated abilities with even the most basic economic data.

October’s results again confirm that Arlington is by no means a “stand out” amongst its neighboring towns as Baron suggested in his email and, in fact, is following along on a path wholly consistent with the trend seen in the county, state, region and nation.

Why would an editor of a nationally recognized newspaper think that a single town would continue to function as an isolated bubble amongst a backdrop of the most significant nationwide housing recession since the Great Depression?

There are only three possible answers.

Either Baron...

(A) is a foolish and incompetent editor incapable of basic economic analysis
(B) likes ad revenues more than he likes to report the truth
(C) both A and B

I favor C.

Sadly, I have now had this very article cited to me, even by complete strangers, on at least eight occasions.

Most recently, an 80 year old local architect who should have known better given his many years of experience with numerous past downturns, but who had unfortunately placed too much trust in a newspaper that now essentially publishes propaganda, recounted the article and its numerous "facts" about Arlington's booming housing market.

Additionally, in a truly grotesque but not altogether surprising turn of events, Realtors in Arlington are now handing out copies of this article (view hideous exhibit A and B below!) during open houses in yet another shameless attempt to bamboozle buyers into confidence and activity.



October’s raw results (as reported by The Warren Group) show us the following for Arlington.

• Monthly median home sales price of $459,000.
• Year-to-Date median home sales price of $466,000, the lowest value since 2003.
• Monthly home sales count of 19.
• Year-to-Date home sales count of 289, a result on par with 2006 and 2005.

As I had shown in my prior post, this data when charted and compared to other towns in the region proves there are absolutely no grounds to call Arlington’s market exceptional.

The following chart (click for much larger version) shows how Arlington’s median sales price has changed since 1988, the first year the data was tracked by the Warren Group. Notice that while the current monthly result is clearly the most jagged and volatile measure, all three (monthly, year-to-date, and annual) measures are essentially saying the same thing, namely median prices are going down.

The next chart (click for much larger version) shows that home sales in Arlington have been essentially flat during the last 15 years, a result that is generally to be expected when looking only at the sales of one town in isolation.

The final chart shows how the year-to-date median sales price for Arlington, Bedford, Belmont, Cambridge and Lexington has changed since 1988. Notice that each town is essentially staying on the same track having made great strides during the boom and now firmly headed lower.

In review, the data shows that there is nothing exceptional about Arlington’s housing market proving clearly that the claims made in the Boston Globe article and later endorsed by its editor Martin Baron were entirely erroneous.

Please let editor Baron know what you think of this misstep.

Realtor’s New Reality: Existing Home Sales Q3 2007

This week the National Association of Realtors (NAR) released their existing home sales report for the third quarter of 2007 showing, in truly stark terms, the tremendously broad nature of the housing downturn.

Single family home sales, on a year-over-year basis, are now falling in every state except for Vermont and North Dakota (see chart below and click for larger version and note that NH and Idaho don’t report sales data) and even those states sales growth are anemic.

Amazingly, even given the obvious completeness of the housing downturn shown by their own data, the NAR’s newly appointed president, Richard Gaylord, blatantly continues the tradition of shameless self interested spin established by his predecessors.

“There is no such thing as a national housing market – it doesn’t perform like the equities markets, … What’s really important for consumers is to make informed decisions based on individual needs, desires and timelines in a given area. Most people plan to stay in a home for 10 years, and for buyers with a long-term view, housing is an excellent investment. … Even in most of the places that are undergoing a large price decline, long-term increases are quite respectable.”

More troubling, perhaps, is the Realtors inability to accurately portray the trend especially when comparing the current quarter’s home sales volume to that of the respective peak sales per state.

In most states, the number of single family home sales, on an annualized basis, peaked either in 2005 or 2006 with a few states peaking as late as Q1 or Q2 2007.

But as you can see from the charts (click for much larger versions) below, all states have peaked in their respective volume of single family home sales and are now declining with the most substantial decline coming from Nevada at 59.92% and the least coming from Mississippi at 3.29%.


As for median selling prices, the NAR’s data (see chart below) also shows widespread weakness among the statistical regions they track.

Given that the majority of price declines have just begun to show in 2007, look for this price chart to continue to deteriorate in coming quarters.

Also, keep in mind that the NAR data only includes sales for MLS listed properties and given this limitation, the S&P/Case-Shiller index for each respective major metro should be considered a far more accurate price reference.

NARcasting The Future: November 2007

Today, the National Association of Realtors (NAR) released yet another downward revision to their outlook for existing home sales for 2007 along with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their forecasts for 2007 home sales into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

The Gloves Come Off!

In addition to putting together yesterday’s post on the ridiculous “market is hot in Arlington” article, I fired off the following email to Martin Baron (and others), Editor of the Boston Globe:

--

All,

The article published yesterday entitled "Arlington is hottest place in Eastern Mass." takes pandering the real estate advertisers many steps too far.

I implore you to read the article at the following link and then publish a retraction. Also, you might want to look over your "reporters" shoulders from time to time... you know... do a little editing every so often.

http://paper-money.blogspot.com/2007/10/boston-globes-new-bubble.html

Sold

P.S. I'm emailing this link to other media outlets as well...

--

A little snarky I know but the fact remains that the Arlington article was a true absurdity and I hardly believe that I’m alone in feeling near outrage over it.

Well, I did in fact elicit a response and I thought I might share it with PaperEconomy readers along with my in-line retorts (in bold).

This post should function as a decent counter response that I will email to Mr. Baron.

--

Thank you for your email. This story was initiated not at the suggestion of a realtor, but by a reporter. We do not kowtow to the interests of advertisers, potential advertisers, or industry groups. The Arlington story was published in the context of dozens, if not hundreds, of previous stories in the Globe on the generally weak housing market.

[
I take it back… the Boston Globe is not pandering to real estate advertisers… it is PART of the real estate industry.

Don’t believe me?

Just take a look at the Boston.com real estate section.

The Boston Globe has a direct relationship with real estate financial information firm the Warren Group and TOGETHER they sell home reports for virtually any home in the region. You buy them right through the Boston.com website.

The Globe also hosts MLS searches right on their main real estate web page which means they have established a significant relationship with the MLS Property Information Network (MLS-PIN) which owns the data.

Why is this important? Because this is not mere advertising.

With the property search and all of the associated tools and accoutrements (town stats, open house postings, mortgage rate lookups, embedded videos etc.) they are actually assisting buyers in ferreting out inventory and in nearly every aspect of the sales process.

Yes this is probably good for the consumer… the tools are useful but the fact remains that these are not mere Sunday sections or even banner ads…. we are in a new era of advertising.

These tools represent a nearly complete synthesis of news media and consumption where you literally read news and can simultaneously participate in buyer or seller activity in the same dynamic frame of reference.

Mr. Baron, you can talk editorial independence and separation from advertisers all you want but is it really likely that this hyper confluence of real estate business and media interests plays NO role in editorial decisions?
]

The story's basic premise – that the market for single-family homes in Arlington is unusually robust amid a nationwide housing slump – is supported by statewide real estate data, as well as by multiple interviews with buyers and sellers in the Boston area.

[
The interviews were anecdotal and the data absolutely does NOT support the notion of “unusually robust”.

Your suggestion again simply perpetuates a preposterous notion.

Yes the August median selling price figure you quoting (apparently recently revised from $510,000 to the $506,000 currently reported by the Warren Group) is on par with August of 2005 and near August of 2004 but what you apparently don't understand is that August settlements capture sales that originated in during June and July, easily the busiest selling months of the year.

This tends to make the August median selling price result volatile and not nearly as representative of the annual median price which is the price that actually matters.

No one quotes just the August value when referring to median selling price… they quote the annual.

Look at the following chart for Arlington and you can see what I mean.

Notice that the August (blue) trend line is the jerky and erratic especially compared to the (red) year-to-date through August and the (green) annual lines.

Notice also that, in general, the year-to-date through August is a decent predictor of the outcome of the annual result whereas the August median value is generally quite poor.

Notice also that in 2006 neither the August or the year-to-date through August was a good predictor for the annual result as the median selling price in Arlington accelerated to the downside during the fall months.
]

The story acknowledges that condo sales have slowed, that houses can still languish on the market, and that while Arlington is affordable relative to surrounding communities, homes there can still easily cost a half-million dollars. But the fact remains that Arlington distinguishes itself in eastern Massachusetts by both days-on-market data and median sale prices.

[
Day’s on the market is at best a very rough way to judge market activity as it is really a byproduct of the MLS listing and not actual market performance.

Of course, in a perfect world, a market full of homes that after being listed with a listing services (like the MLS) stay there racking up “days-on-market” until being removed as a result of a purchase would actually be a good indicator but anyone who has actively watched a town’s inventory knows that that’s not the case.

In reality, homes are removed and re-listed frequently for many reasons by both Realtors and sellers.

This skews the number and although it still serves as a rough guide to activity, Arlington’s 83 day average is certainly nothing to get exuberant over.

As for the median selling price… see above.
]

As of October 5, the median sale price for single-family homes in Arlington was $510,000 in August, the most recent month available from the Warren Group – and a traditionally slow month for house sales. In the past week, that number has dipped by $4,000 due to updated Warren Group data. The data is updated constantly.

[
No. Sorry Mr. Baron, the August results represent the highest monthly sales for the year.

It’s important to keep in mind that the sales results captured in August are from purchases that generally originated in June and July and possibly the very first few days of August.

Remember, buying a house takes time and The Warren Group captures the data after it has been finalized by a deed transaction at the registry.
]

The year-to-date median sale price for single-family homes in Arlington is $465,500 as of this afternoon. By that measure, too, Arlington is a standout in eastern Massachusetts. It is also a standout compared to the neighboring communities cited in the story – Bedford, Belmont, Cambridge, and Lexington. Sales data indicate that Arlington’s real estate market was extremely busy this summer, resulting in a higher median sale price in August. As a result, Arlington is on track this year to match and perhaps exceed its busiest-ever year for home sales, 2004.

[
Again, you are expressing an obviously fundamental misunderstanding of the data.

You are treating home sales as if they inflate like the selling price.

Short of some truly fundamental change, home sales at a town level remain relatively constant over time.

In terms of a single town market, there is a relatively fixed housing stock, similar numbers of population, similar household formation and relocations in and out of the town all resulting in a fairly stable numbers of home sales.

Of course there could be a significant period of slowing that would possibly take things down a notch but as you can see from the chart below, even the mortgage-mania that occurred between 2000 and 2006 barely registered.

Further, I don’t see how this is the “busiest-ever” year… doesn’t it look flat to you?

Additionally, I take exception with your notion that, in terms of year-to-date
median selling price, Arlington is a “standout” amongst eastern Massachusetts towns like Belmont, Bedford, Cambridge, and Lexington.

Look at the following chart of year-to-date median selling prices for those towns and see if you can explain how you arrived at the term “standout”.

I don’t see Arlington standing out very much at all… It has the lowest median price but it has always had the lowest median price.

Normalizing each towns results to a base of 100 makes the fact that the sharing the same experience even a bit more clear.


The towns are all essentially following the same path, namely up the boom years and now… heading down again.
]

Regarding the percentage of Arlington homes that sell under listing price:
This data cannot be examined in a vacuum. Without comparing it to data in surrounding cities and towns, and to historical data in Arlington, the figure has little meaning. Even in strong housing markets, homes sell under asking price. That any houses would sell above list price in the current statewide and national real estate market is remarkable.

[
Zip (i.e. use ziprealty.com) any town inside 128 and the number of homes with price reductions is roughly 50% INCLUDING Arlington (at 55%).

Sellers have been reducing prices just to lure buyers into making below list offers on 66% of all sales and list-to-below-list on 90%.

That's significant and it's a good barometer of the depth and breadth of the downturn.
]

Sincerely,
Martin Baron
Editor
The Boston Globe

---

Mr. Baron, originally you published an article that had incredibly poor quality of information with at best a few anecdotal stories supported by numbers that your reporter knew not how to interpret.

Now, you yourself defend the story with an even worse level of understanding.

I have made my case and I’m repeating my demand that you publish a complete retraction placed in a comparable position to the absurdly poor article published on Wednesday and further to cease and desist promulgating such poor quality “news”.

NARcasting The Future: October 2007

Today, the National Association of Realtors (NAR) released yet another downward revision to their outlook for existing home sales for 2007 along with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their forecasts for 2007 home sales into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

The Daily 2¢ - New Math, Old Reality

It’s been about a year and a half now since the husband and wife team of Gary and Margaret Hwang Smith, two professors of economics from Pomona College presented a paper at the Brookings Institute entitled “Bubble, Bubble Where’s the Housing Bubble?”.

Their paper initially took the fairly sound position of estimating a home’s “net present value” by calculating its potential cash flow, including rental income, but then proceeded at great lengths to justify the price appreciation seen during the boom years by making overly optimistic assumptions as well as including some truly fuzzy logic.

For example, the Smith’s assist the cash flow derived from rental income with additional value derived from “non-financial factors”, such as a “pride of ownership” and “desire for privacy”.

That’s about where the papers leaves reality and enters the realm of shameless contrivance.

I guess that might not be too surprising from a couple of professional real estate and financial “experts” who, having just recently purchased a nearly million dollar Craftsman style single family home in Claremont California, clearly had a lot at stake in justifying their “investment”.

The paper eventually concluded that many of the hyper inflated metro areas such as Boston, Los Angeles and Chicago were not only NOT bubbles they were actually UNDER PRICED.

"Buying a house at current market prices still appears to be an attractive long-term investment."

What’s worse though is that their paper (and story of their home purchase etc.) was picked up by the New York Times and published in an article titled “Some New Math on Homes” ironically on April Fool’s Day in 2006.

This article and the Smith’s paper undoubtedly did some serious damage as it painted that classic “things are different now” picture at the exact moment that the nation’s housing markets were beginning peak and then steadily decline.

I can only imagine the scores of people who read their story, bought into their proposition, and then felt more comfortable taking the plunge to home ownership right at the very peak of the market.

As if to add a final "insult to injury" the Smith’s now have a blog where they persist in making their “housing market still appears attractive” claim and further reveal that their analysis is to become the basis of a new book they have coming out titled “Houseonomics”.

Well, if it’s any consolation, it appears that the Smith’s home has not escaped the “actual” fundamentals of the downturn dropping nearly 2% on a year-over-year basis in August according to a SoCal Real Estate News and Data Source DataQuick.

Furthermore, southern California is now seeing homes sales fall steeply and steadily with the latest results showing sales dropping to their lowest level in 15 years.

With the S&P/Case-Shiller Futures for Los Angeles predicting continued declines to the price for single family homes and the inventory for Claremont climbing to new highs, the Smith’s may get what they deserve after all.

NARcasting The Future: September 2007

Today, the National Association of Realtors (NAR) released yet another downward revision to their outlook for existing home sales for 2007 along with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their forecasts for 2007 home sales into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually
rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial
projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

A Closer Look at New Home Sales: July 2008

As I had noted before, in 2004 new home sales exhibited an interesting phenomena whereby the distribution of home sales, grouped by several price ranges, effectively flipped from what one might conclude to be logical and from the historical norm.

Prior to 2004, in general, the least expensive new homes sold the most numbers of units while the most expensive new homes sold the least numbers of units.

Not a very surprising result as one might easily conclude that the majority of new home buyers cannot, in general, afford the most expensive homes.

After 2004 though, the scenario exactly flipped in that the most expensive new homes easily outsold the least expensive homes.

Now, this could either be explained by the inflating of home prices during the boom, easy availability of bloated loans, home buying patterns, or a little bit of all of these events but no matter what the cause, it appears that the scenario is now in the process of flipping yet again.

Since the peak in 2005 new home sales have been falling among all price ranges but more recently there have been relative strength in the sales of lower priced home and a marked weakness in sales of the highest priced homes.

The interesting point here is that the “flip” that occurred in 2004 was likely an anomaly made possible by the boom which is likely to completely reverse in the coming years as the environment for home building settles back to a more historically normal scenario.

This “re-flipping” of new home sales may serve as a good indicator of the unwinding of the boom.

The first chart shows new home sales for the highest priced new homes, i.e. homes priced above $300,000 (click for larger version). Notice that since 2005 sales have been declining sharply.

The following chart shows both a "smoothed" and raw unadjusted number of new homes sold for four different price ranges (click for larger). Notice that the price ranges appear to be converging and likely flipping back to a more historical normal pattern.


Another way to visualize this issue is to view each price ranges “market share” of all new homes sold (click for larger version). Notice that back in 1999, over 40% of new homes were priced under $200,000 whereas now, new home sales for homes in this price range total less than 20%.

The Boogie Continues with Bob Toll

Yesterday, Toll Brothers (NYSE:TOL) reported Q3 earnings results confirming an additional $147.3 million of pretax write-downs that helped to depress their net income by an astounding 84.82% as compared to Q3 2006.

Also, it's important to note that the company has now announced a total of $363.9 million in pretax write-downs thus far in 2007 in a year that, in December of 2006, they had anticipated at most $60 million.

During the conference call, CEO Bob Toll appeared to offer very little optimistic sentiment pointing out that “horrible” buyer traffic is and setting new lows, handily surpassing the lows of prior downturns.

Additionally, Doug “The Bear” Kass of Seebreze Partners Management, Inc. makes an interesting appearance toward the end of the call.

The following are excerpts from yesterday’s conference call:

When asked about his “F- -“ rating for the Las Vegas housing market Toll replied:

“You might add another minus to that… What does it mean? It means you’ve flunked and what are we doing about it? We’re out there with the rest of the builders in Vegas praying. There’s not much you can do… You can’t advertise your way out of that situation. You just have to wait for a market to come back.”

Then referring to the results of the entire operations in Las Vegas, Toll reported:

“This week we took no deposits… we did take one agreement. Last week we took five deposits… the week before that we took none. The week before that we took six… The preceding four weeks before that we took twelve. These are deposits… I would guess about two thirds go to agreement. Then some of the agreements don’t stick. In the last eight weeks we’ve taken seven agreements. So, that’s what we consider real bad.”

When asked about whether buyer traffic was down in August as the mortgage-credit meltdown issue heated up Toll responded:

“Very simply, traffic is horrible. This past week was the lowest traffic for this particular week ever in our history. And that condition has existed, pretty much, for the last nine weeks. And then prior to that, there was a little hiatus where we did a little better that the worst in our history… then going back a little further, once again we are doing the worst in our history. So, our history includes ’87, ’88, ’89, ’90 so traffic is pretty stinky out there. ”

The final “piece de resistance” of the conference call was delivered by none other than Doug “The Bear” Kass of Seabreeze Partners Management, Inc.

Kass asked “This is a much broader question than has been asked on the conference call…(Toll: It’s great to be a short by the way… Kass: chuckles…) If the administration came to you to resolve the housing crisis, what remedies would you recommend Bob to bring supply and demand back into balance over a reasonable period of time?”

“Well, I think the most important thing is to immediately address the mortgage concerns. Giuliani was asked in an interview with Kudlow recently… would he bring in any regulation and he said that it was up to the market to straighten things out and it will. In my opinion, that’s probably what the guys said in ’29 that were running the Fed.

I was castigated recently for suggesting a few weeks ago that some government regulation would not be a bad thing. The average reaction was, the minute you let the government in, you’re begging for disaster. I can generally agree with that, look at whats happened with wetland regulations for instance… you need a team of lawyers to fill a puddle in your back yard.

On the other hand, where would we be without anti-trust legislation? We would probably have one oil company known as the United States of American Standard…. (chuckles about the slipup… American standard is a toilet manufacturer Toll was referring to Standard Oil)

I think a little regulation wouldn’t be a bad thing. I wouldn’t rule out 100% or 90% LTV but if you’re seeking that kind of thing, you have to pledge additional assets or at least prove additional assets so that so if the home price goes down and you want to walk, the mortgage lender has got a note that he can apply not only to the home but that he can apply to other assets that are obviously sufficient to take care of the loss.

What happened was, for a hundred years we had S&L’s as the backbone of the mortgage system and then they went bad and we tossed the baby out with the bathwater. And went to another system, that I don’t suggest that we try to break away from which is the securitization.

The problem is, everybody is working on commission today, nobody is a portfolio lender.

The guy that wants to get you the mortgage is a commission fella, and he’s handing it over to guys that are working commission to package it. The brokers are working on commission in order to sell the goods. And the guys buying the goods are not really paying attention to what they’re buying. And I think it’s reasonable to have standards imposed that you can’t lend above these lines and that should, to some extent, protect us from ourselves.

But I’m getting so many ‘cut the throats’ around here… guys are signaling to me to please stop this… and remember this is a Toll Brothers call and not a Bob Toll call so I’m off, I’m going back to Toll Brothers.”

Listen to the complete Q3 conference call here.

Here are some of the interesting data points from the Q3 release:

Third Quarter Results:

• Net income was $26.5 million down 84.82% compared to Q3 2006.
• Pre-tax land write-downs totaled $147.3 million up 516.31% compared to Q3 2006.
• Earnings per share declined 85.04% as compared to Q3 2006.
• Total revenues were $1.21 billion down 20.91% compared to Q3 2006.
• Net signed contracts were $727 million down 30.76% compared to Q3 2006.
• Quarter end backlog was $3.67 billion down 34.34% compared to Q3 2006.
• Signed contracts (after cancellations) was 1110 down 23% compared to Q3 2006.

Current 2007 Projections:

CANCELLED!... Your now on your own.

Crashachusetts Existing Home Sales: July 2007

Yesterday, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for July 2007 showing supposedly “encouraging” results with single family home sales increasing 6.0% compared to July 2006.

Keep in mind though, a 6% jump from last July is not saying very much as the result is still at the slowest pace of sales for a July since 1995.

Also, The Warren Group, which records much more comprehensive sales and median price figures based off of actual deed transactions, reported results that are more consistent with the latest results of the S&P/Case-Shiller home price index for Boston showing a more tame 1.5% increase in single family home sales with a 4.6% drop to the median home price.

But since we all know MARs results are skewed by MLS only listings and we have been following them all along, let’s just play along for the moment.

Possibly in a future post I’ll throw out the MAR numbers altogether and switch over the obviously more accurate Warren Group figures.

Along with MARs release, President Doug Azarian continued to spin his optimistic tales suggesting the buyers with “good credit” are back “buying again”.

“While the tighter lending standards may have taken some buyers out of the market over the past several months, it appears that those who have good credit and some equity, are getting the financing they need and are buying again.”

Azarian forgets to mention that buyers are buying like they are in 1995!

Mmmm… What a frenzy!

An important figure in today’s report though is the single family inventory and monthly supply which, while still showing overall inventory declining, shows demand slowing even faster resulting in an 8.6 month supply of homes, a 15% increase compared to last month.

Again, as I noted last month, June, July and August typically show the highest volume of sales for the year (see the chart below and click for larger version) so calculating the months supply from these months sales pace is a bit unrealistic.

Possibly a better choice would have been to simply average the monthly sales results seen in to date in 2007 and use that as the denominator.

This would yield an average of 3591 single family home sales per month resulting in a likely more accurate 10.3 “months of supply” of single family homes.

Also note that as seen in the chart above, home sales are continuing to weaken with 2007 results generally coming in below 2006 which were generally below the results seen in 2005.

As for home prices, MAR reports a increase of 1.3% to the median price for a single family home as compared to July 2006 while the Warren Group again reported a more significant, and likely more accurate, drop of 4.6%.

With significantly falling prices, continued declining sales volume and a slowing pace of sales, it seems hard to believe that Azarian’s “encouraging signs” call and optimistic outlook has any merit especially when considering that all of this weakness is coming on the back of the historic declines seen in 2006.

A more likely scenario is that our area is experiencing a fundamental correction to prices that, through unusually low interest rates and historically easy lending standards, were able to rocket to irrational heights during the run-up years.

To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the year-over-year and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).


The “year-over-year” chart compares the percentage change, on a year-over-year basis, to the BOXR from the last positive value through the decline to the first positive value at the end of the decline.

In this way, this chart captures only the months that showed monthly “annual declines” and as we can see, if history is to be a guide, we could be about one third of the way through the annual price declines with the majority of falling prices yet to come.

The “peak” chart compares the percentage change, comparing monthly BOXR values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

Notice that peak declines have been more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

July’s Key Statistics:

• Single family sales increased 6.0% as compared to July 2006
• Single family median price increased 1.3% as compared to July 2006
• Condo sales declined 0.1% as compared to July 2006
• Condo median price increased 6.3% as compared to July 2006
• The number of months supply of single family homes stands at 8.6 months.
• The number of months supply of condos stands at 8.6 months.
• The average “days on market” for single family homes stands at 123 days.
• The average “days on market” for condos stands at 116 days.

Constructing Capitulation: June 2007

Looking back at June’s results (released in July) it safe to say that the weakening demand and an ongoing mortgage credit crisis are continuing to weigh heavily on the nation’s housing markets, sending them spiraling down yet another leg in this unprecedented housing decline.

The advance GDP Report for Q2 2007 continued to show a significant drag coming from the decline in residential fixed investment as well as significant revisions to past GDP results better demonstrating the pronounced effects this drag has had for the last four quarters.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

The housing weakness also appears to clearly show up in retail sales as consumers pullback on spending for some of the most discretionary of goods.



The National Association of Realtors (NAR) released their fifth consecutive downward revision to their annual home sales forecast for 2007 putting the current outlook far below the “rose colored” initial predictions from the start of the year.

Homebuilder confidence continues to decline to near multi-decade lows with respondents indicating that estimates of “present” and “future” conditions as well as buyer traffic continues to slump.

The Census Department’s New Residential Construction Report which continued to indicate significant weakness in the nation’s housing markets and for residential construction showing substantial declines on a year-over-year basis to single family permits both nationally and across every region.

The Census Department’s New Residential Home Sales Report that, renewed declines, even accelerating in some regions, as well as significant downward revisions to last month’s results.

As with prior months, on a year-over-year basis sales are still declining in the double digits at 22.27% below the sales activity seen in June 2006.

NAR’s Existing Home Sales Report showing additional confirmation that the nation’s housing markets are continuing to experience weakness with EVERY regions showing considerable declines to sales as well as continued increases to inventory and monthly supply.

The May 2007 results of the S&P/Case-Shiller Indices are continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -11.06%, San Diego at -6.96%, Tampa at -6.67%, Washington DC at -6.34%, Phoenix at -5.55, Boston at -4.29% and Las Vegas at -4.10%.

Furthermore, comparing the last major downturn in the late 80s and early 90s to the current data may indicate that the current housing downturn is in its infancy with year-over-year declines only just having materialized in the last eleven months.


June's Pending Home Sales Report for June 2007 showing a continuation of the historic decline to residential housing on a month-to-month and year-over-year basis, both nationally and in every region.

The Census Department’s Construction Spending Report for June again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell -16.39% as compared to June 2006 while private single family construction spending declined by a grotesque -25.82%.

Key Report Details:

• The seasonally adjusted annul rate of private residential construction spending has now dropped 21.80% from the peak set back in February 2006.
• Overall private residential construction spending dropped -16.39% as compared to June 2006.
• Single Family residential construction spending dropped 25.82% as compared to June 2006.

The following charts show changes to construction spending (click for larger version):

New Home Sales: June 2007

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for June showing renewed declines, even accelerating in some regions, as well as significant downward revisions to last month’s results.

As with prior months, on a year-over-year basis sales are still declining in the double digits at 22.27% below the sales activity seen in June 2006.

It’s important to keep in mind that these declines are coming on the back of the significant declines seen in 2006 further indicating that the decline is not abating.

This should not be understated as it is clearly showing continued and even accelerating weakness to new home sales.

The following charts show the extent of sales declines seen since 2006 as well as illustrating the further declines 2007 is showing on top of the 2006 results (click for larger versions)

Note that the last chart essentially combines the year-over-year changes seen in 2005 and 2006 and shows sales trending down precipitously as compared to the peak period.




Look at the following summary of today’s report:

National

• The median price for a new home was down 2.17% as compared to June 2006.
• New home sales were down 22.3% as compared to June 2006.
• The inventory of new homes for sale declined 5.0% as compared to June 2006.
• The number of months’ supply of the new homes has increased 21.9% as compared to June 2006.

Regional

• In the Northeast, new home sales were up unchanged as compared to June 2006.
• In the West, new home sales were down 42.8% as compared to June 2006.
• In the South, new home sales were down 12.9% as compared to June 2006.
• In the Midwest, new home sales were down 28.4% as compared to June 2006.