Collapsedachusetts Existing Home Sales (Preview): January 2008

Sources inside the Massachusetts Association of Realtors (MAR) report that tomorrows monthly existing home sales results will show that January single family home sales crashed 27.7% on a year-over-year basis while condo sales collapsed 33.7% over the same period.

Further, the single family median selling price declined 5.6% on a year-over-year basis to $321,000 while condo median prices increased 3.5% to $277,500.

It’s also important to note that January’s single family home sales count was the lowest January result on record since 1992 and at 1984 units sold was 37.9% below the record peak set in January 1999 and 33.1% below the more recent peak of January 2005.

The following charts (click for larger) show the decline in single family home sales since 2005.

Notice that January 2008 is registering a home sales count well below even the 2007 level as well as indicating that the February’s results will be well below 2000 units, a significant decline.


After two years of declining home sales, weakening home prices and now looming recession it appears that Massachusetts may have just entered the price “free-fall” phase of the housing decline where home prices continuously drop even through the spring months which are typically strong in the region.

Stay tuned as tomorrow the S&P/Case-Shiller home price index results will be available for Boston likely showing the most significant decline in the last 12 months.

Constructing Capitulation: July 2007

Looking back at July’s results (released throughout August) it’s obvious that the nation’s housing markets are continuing to show significant weakness, even during what, for most measures, is generally the seasonal peak in activity for the year.

Slowing demand and the now undeniable mortgage-credit-financial crisis are continuing to weigh heavily on housing, setting up for what seems fairly certain to be a new leg down and ultimately a severe housing recession.

The preliminary 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 continues to clearly show up in retail sales as consumer’s pullback on spending for some of the most discretionary of goods.


The National Association of Realtors (NAR) released their sixth 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.

NAR Chief Economist Lawrence Yun now suggests that the demand is still out there but it’s just being “delayed”.

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 continues to indicate horrendous 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, despite all the traditional media’s “unexpected increase” coverage, continues to show weakness as well as significant downward revisions to April and May’s results.

As with prior months, on a year-over-year basis sales are still declining significantly at 10.2% below the sales activity seen in July 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, across every product (single family, condos), as well as continued increases to inventory and monthly supply.

The June 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 -11.01%, Tampa at -7.70%, San Diego at -7.30%, Washington DC at -6.96%, Phoenix at -6.55, Las Vegas at -5.09%, and Miami at -4.79%.

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.

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 -16.11% as compared to July 2006 while private single family construction spending declined by a grotesque -25.32%%.

Key Report Details:

• The seasonally adjusted annul rate of private residential construction spending has now dropped 23.27% from the peak set back in February 2006.
• Overall private residential construction spending dropped -16.11% as compared to July 2006.
• Single Family residential construction spending dropped 25.32% as compared to July 2006.

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

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%.

S&P/Case-Shiller: June 2007

The most recent release of the S&P/Case-Shiller home price indices for June 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 -11.01%, Tampa at -7.70%, San Diego at -7.30%, Washington DC at -6.96%, Phoenix at -6.55, Las Vegas at -5.09%, and Miami at -4.79%.

Additionally, both of the broad composite indices showed accelerating declines slumping -4.07% for the 10 city national index and -3.49% for the 20 city national index continuing the first negative slump in annualized appreciation seen since the early 90’s housing bust.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool and be sure to read the Tutorial in order to best understand how best to utilize the tool.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights how young the current housing decline is, having only posted four consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only ten months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

Existing Home Sales Report: July 2007

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for July showing that the fall-off in demand for residential real estate is continuing and occurring uniformly across the nation’s housing markets.

Senior Economist Lawrence Yun is now suggesting that the weakness, if it were not for the mortgage-credit meltdown, home sales would “probably” be rising.

“Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months, … Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize.”

Additionally, NAR President Pat Vredevoogd Combs continues to attempt to persuade potential buyers to ignore the obvious dramatic housing correction.

“For buyers able to qualify for conventional financing, there are ample opportunities in the current market, … Availability and pricing of conventional loans are reasonable, and FHA-insured mortgage applications have been rising as low- and moderate-income buyers seek alternatives to subprime loans. If buyers are in it for the long haul, now can be a good time to get into your home.”

Looking at July’s Existing Home Sales report should only result in additional confirmation that the nation’s housing markets are continuing to experience weakness with EVERY region showing considerable declines to sales of BOTH single family and condos as well as significant increases to inventory and monthly supply.

Keep in mind that we are now seeing existing home sales declines on the back of last years fairly dramatic declines further indicating that the housing markets are not bottoming as many had been suggested last fall.

Below is a chart consolidating all the year-over-year changes reported by NAR in their July 2007 report.

Particularly notable are the following:

• Sales are down significantly in EVERY region and for BOTH single family and condo.
• ALL Inventory and Months Supply show significant increases on a year-over-year basis.

NARcasting The Future: August 2007

Last week, 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.”

On Vacation!

I’ll be away on vacation for the next week so I thought I would take this opportunity to recommend a few of the excellent blogs on the blogroll that you can read in order to stay completely current on the housing decline.

Don’t forget, while I’m away the Inventory Tracking Tool, S&P/Case-Shiller/Futures Tool, OFHEO HPI Tool, and Bubble Times are always running and up to date so check them daily.

Also, although BNN - The Bubble News Network will have no new videos added until I return, there is now OVER 300 bubbly clips posted up there... So Watch Away!

For up-to-date blogging on housing and lending, as well as interesting analysis and charts of the Countrywide Financial REO inventory check out the Countrywide Foreclosures Blog.

For an exceedingly interesting perspective on the US economy including complete coverage of the housing fiasco read Immobilienblasen.

For BNN-style video-blogging there is both the Real Estate Video Blog and the New York City Housing Blog with daily video posts of all things bubbly.

For S&P/Case-Shiller and OFHEO charts as well as a host of other really impressive charts check out Housing Bubble Bust.

For Bubble Times-esc and Digg-styled Housing Bubble news you can turn to Housing Bubble News Central and Speculative Bubble.

For the best in regional coverage of the housing and mortgage meltdown read any of the blogs in the US Regional Section of my blogroll particularly:

• Boston Bubble
• Sacramento Landing
• The Marin Real Estate Blog
• The New Jersey Real Estate Report
• The Second City Bubble blog
• The Chicago Bubble Blog

Happy bubble reading and be sure to check back to PaperMoney as I’ll be sure to be blogging away as soon as I return.

S&P/Case-Shiller: May 2007

Yesterday’s release of the S&P/Case-Shiller home price indices for May 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%.

Additionally, both of the broad composite indices showed accelerating declines slumping -3.38% for the 10 city national index and -2.83% for the 20 city national index continuing the first negative slump in annualized appreciation seen since the early 90’s housing bust.

To better visualize the results use the PaperMoney S&P/Case-Shiller/Futures Charting Tool and be sure to read the Tutorial in order to best understand how best to utilize the tool.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights how young the current housing decline is, having only posted five consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only twelve months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

Reading Rates: MBA Application Survey - July 25 2007

The Mortgage Bankers Association (MBA) publishes a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined marginally since last week and now stands at the near peak for the year at 6.59% while the purchase volume decreased 5.0% and the refinance volume decreased 1.4% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

New Residential Construction Report: June 2007

Today’s New Residential Construction Report continues to indicate significant weakness in the nations 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.

Single family housing permits, the reports most leading of indicators, again suggests extensive weakness in future construction activity dropping 27.5% nationally as compared to June 2006.

Moreover, every region showed high double digit declines to permits with the West declining 30.7%, the South declining 30.3%, the Midwest declining 18.1% and the Northeast declining 14.9%.

Keep in mind that these declines are coming on the back of last year’s record declines.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values compared to the peak years of 2004 and 2005.

Notice that on each chart the line is essentially combining the year-over-year changes seen in 2005 and 2006 and shows virtually every measure trending down precipitously.

Although year-over-year declines to permits, for example, have not accelerated measurably from September 2006, the fact that they continue to decline roughly 30% should provide a solid indication that they are by no means stabilizing.




Remember that permits, starts, and competitions are not simply independent measures but are, in fact, three logically related and dependent measures.

In the process of a building project, first you get the “permit”, next you “start” building, and finally you “complete” the project.

For this reason, one must adjust expectations prior to reading a newly released Census Department report to account for the true nature of the data published simultaneously each month.

As in past months, I have “smoothed” out the unadjusted data and aligned the three data series (i.e. moved starts ahead a month and completions ahead six months) to make more obvious their trend.

The following is the unadjusted permits, permit-starts and permit-completion data charted since 2000 (click for larger version).

The following is the unadjusted permits, permit-starts and permit-completion data smoothed with a 12 month moving average (click for larger version).

The following is the smoothed data aligned to indicate the dependent nature of each series and showing the obvious leading nature of permits (click for larger version).

The following is the aligned data normalized to make the relationship even more obvious.


Here are the statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits down 4.1% from May, down 27.5% as compared to June 2006

Regionally

• For the Northeast, single family housing down 1.1% from May, down 14.9% as compared to June 2006.
• For the West, single family housing permits down 1.9% from May, down 30.7% as compared to June 2006.
• For the Midwest, single family housing permits down 3.4% from May, down 18.1% as compared to June 2006.
• For the South, single family housing permits down 5.9% from May, down 30.3% compared to June 2006.

Housing Starts

Nationally

• Single family housing starts down 0.2% from May, down 21.6% as compared to June 2006.

Regionally

• For the Northeast, single family housing starts up 0.9% from May, up 19.6% as compared to June 2006.
• For the West, single family housing starts up 6.7% from May, down 20.3% as compared to June 2006.
• For the Midwest, single family housing starts up 3.1% from May, down 21.7% as compared to June 2006.
• For the South, single family housing starts down 4.6% from May, down 27.2% as compared to June 2006.

Housing Completions

Nationally

• Single family housing completions down 6.3% from May, down 29.8% as compared to June 2006.

Regionally

• For the Northeast, single family housing completions up 11.4% from May, down 16.4% as compared to June 2006.
• For the West, single family housing completions down 12.0% from May, down 38.3% as compared to June 2006.
• For the Midwest, single family housing completions up 0.5% from May, down 35.6% as compared to June 2006.
• For the South, single family housing completions down 8.4% from May, down 25.3% as compared to June 2006.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

NARcasting The Future!

The National Association of Realtors (NAR) today released another downward revision to their outlook for existing home sales for 2007 along with another dose of truly preposterous 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 (click for larger version).


12/11/2006
Lereah "Most of the correction in home prices is behind us."

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

2/7/2007
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
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
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
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007
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
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

Reading Rates: MBA Application Survey - July 11 2007

The Mortgage Bankers Association (MBA) publishes a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased since last week and now stands at the peak for the year at 6.65% while the purchase volume increased 3.8% and the refinance volume decreased 3.0% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).