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Existing Home Sales Drop -16.7%, Missing Consensus Of -10%, Biggest Monthly Decline In History
December existing homes sales dropped to a 5.45 million SAAR, down a whopping 16.7%, which was the wost monthly decline in history, compared to November's unrevised 6.450 million, missing both the consensus of a 10% decline to 5.9 million, as well as Goldman's bear case of -15%. Just as with the auto SAAR, with the government housing, this is yet another data series that is completely meaningless.
The drop was most acute in the Midwest, where the SAAR number declined by 25.8% from 1.55 million to 910,000, and best in the West, where California and associated banks are doing all they can to take advantage of consumers who have already forgotten the last housing bubble which now seems so long ago, and the decline was a mere 4.8% to 1.38 million.
Notably, the months supply number increased from 6.5 in November to 7.2 in December.
The NSA Median price increased from $170k to $178.3 k, mostly as a function of continue shadow inventory retention, and banks' hopes that lack of excess supply will generate more than excess demand, or some other knuckleheaded version of Say's law.
Luckily, at least Bernanke will get renominated, and the housing bubble can start afresh.
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There's a green shoot for you.
And the market is up because Bernanke is safe.
So much for the first-time buyer and move-up buyer tax credits. Actually those each added about $8000 to prices, at least in my market. I of course did a "move-up" transaction but did it 8 days too early to qualify.
There was enough hype about the first-time buyers' credit expiry 10/31 and uncertainty that it would be renewed that of course all the demand was pulled forward and everyone who was going to buy an existing home did it before 10/31. Winter being a very slow time in residential in the northern climes anyway, it stands to reason you'll hear crickets chirping until Spring; everybody who might have bought in January did it in October.
Still not moving the inventory priced above $250k in my market. A decent house under $200k was gone in minutes in late September. And there are a lot of empty homes that aren't listed. Somebody would like to sell them for what they sold for in 2006.
Extreme ways are back again
Extreme places I didn't know
I broke everything new again
Everything that I'd owned
I threw it out the window
Extreme sounds that told me
They held me down every night
I didn't have much to say
I didn't give up the light
I closed my eyes and closed myself
And closed my world and never opened up to anything
That could get me at all
I had to close down everything
I had to close down my mind
Too many things could cut me
Too much could make me blind...
http://www.youtube.com/watch?v=pOuPqeHXMzQ
This is a disaster of epic proportions that will go under-reported. What it points out is the fact that home prices "still" have to come down. It is that simple. The weight of inflated home prices will eventually overcome all efforts to prop them up and the result will be a collapse in prices in line with the collapse in demand.
If they had let this happen in the beginning we might be almost through the price correction but now the ball only has further to fall and crush our toes.
My fear is this will prompt a new round of economic management by the government - management that has, in my humble opinion, made things worse.
No kidding. Look at those charts. Around 2000 is the last time you see anything that isn't deranged. Think how much notional value/funny money/call-it-what-you-will has to go "Poof!" for us to get back to something like stability, as it would appear on the charts. Really ugly stuff.
The housing market/real estate business is the ultimate too big to fail.
Banks need the help for obvious reasons.
Realtors and builders are very strong lobbyists.
Towns need the inflated prices to keep tax revenues at ridiculous highs.
Governments and real estate related businesses have learned nothing and this will not end well.
I first saw Jim the Realtor (SD,CA area) via Calculated Risk, and have since been going to his site, bubbleinfo.com, to watch the re-inflating of the housing bubble in his area of the CA dream. It's good TV.
It is awesome to see people still buying homes, close enough together you could spit through each other's kitchen window, for high 6 and 7 figures.
Bubbles? What bubbles?
I propose that folks at BLS be put in charge of releasing this vital statistic. We would then have seen the "correct" data released!
Lost in the Bernanke vote, the Brown victory and the disaster in Haiti is the fact that the numbers are deteriorating again...in housing, production, and labor.
Will the upcoming GDP number (geared to be worse than the "better than expected" real expectation) be good enough to hold this market up in the face of renewed weakkness?
Of course, the Government has trained everyone to wait for more bailout and stimulus. This freezes the market to a major extent. Banks don't want foreclosure sales at low levels right before the auditors come in at year-end. Average Joe is waiting for an even bigger tax incentive. The result: a standoff and few transactions.
If they would just let the markets clear....
And the market is up?
Conclusion - the "new consensus" is that the Fed's bubble blowing capacity is infinite.
Is it?
Is there any data on how many used sales are foreclosure related?
Hah...and the banks are pissing in their pants over foreclosures and loan modifications. Given this, the last they need is to dump even more empty homes on the market.
Phew, I was worried a bit until I realized that the banks probably have already taken the hit on their bad mortages and have foreclosed on just about all of their residential properties to clean up their balance sheets.
ummm, they did do this right?
Green sharts!
In other headlines:
Bloomberg:
Existing U.S. Home Sales Decreased More Than Forecast
New York Times:
Existing Home Sales Drop More Than Forecast
Wall Street Journal:
Existing-Home Sales Tumble
Historic? Nothing to see here
And yet, this miss was - in the minds of the MSM - "unexpected". I guess they really did think that Barry O was going to be able to fix everything merely with the awesome power of his totally awesome hunkiness.
that and all the black people on TV are always so deep, real, and capable...I too, am perplexed by this thing called reality
You smell it? QE2 BIGTIME baby coming up!
What strikes me in this report is that even with the extension of the tax credit, sales still slipped to a record low. Previous sales were bought from forward demand in an attempt to prop up the housing market. And it worked in the short run but now what? Same thing happened with autos. All this is at the expense of the future earnings of American workers. All these dollars are going to get repaid either thru higher taxes or higher inflation. There is NO Free Ride. And borrowing means the cost of initiating the lending plus the interest on the notes. For what? To bolster CONFIDENCE? Confidence in borrowing money that we can’t repay? So we’ll spend the future today? And then where do we go? How do we support all this going forward?
And going forward there is a head wind of both FRE and FNM losing so much money. There is building pressure in Congress to get the deficits under control and FNM and FRE are both under the microscope. Plus both have already announced tightening of the credit requirements as 30% of the loans made under the bail out have already gone into default.
There is also a point when states are unable to continue funding the Unemployment Insurance. They have a few options. Dramatically raise premiums on business still operating, borrow more money or start to cut people off. I suspect borrowing more money for UI is going to be low on their agenda when schools, police, prisons and many other public safety issues are dying due to lower tax receipts. The great unwinding is upon us.
Policies of borrowing more and more worked prior to Zero Hour but they can not work now. Obama and his crew are going to pay for this stupidity. Which means, we are all going to pay! We need lower levels of debt and there is only one way at this point to get there and that is thru write downs. All this propping up is futile. It will only make matters worse.. I guess we could get there if the government put lots of money in each of our accounts which would create inflation. Otherwise any inflation created by the TBTF will just take away from disposable incomes and thus make the ability to service existing debts much more of a negative and cause more defaulting.
If the Obama Administration wanted jobs, they need to put in the homework and put the borrowing towards making the US stronger, not waste it on giveaways just to support the unsupportable. The entire debt pyramid is supported by profits from value added productive endeavors. Not profits from financial manipulations. We are not going to get ahead by paying blackmail to the TBTF who pass it out as bonuses and BS wages. There really is NO trickle down from this kind of BS. We need high speed rail and new pipe lines to move NG and fuel, a more efficient transportation system for goods and electricity. If we want to continue to receive fresh produce throughout the winter months from Florida and Mexico we need to be able to get it to market a lot cheaper than on a truck which burns a lot more expensive fuel per ton transported than happens with rail.
What strikes me in this report is that even with the extension of the tax credit, sales still slipped to a record low. Previous sales were bought from forward demand in an attempt to prop up the housing market.
One major cause of the slip was due to the fact that nobody wanted to put contracts on homes in NOVEMBER because they thought the tax credit was over. If you look back, pending home sales sliped in November, which would naturally mean that sales in December drop, given a 30-45 day lag time on closings.
However, I do agree with your general hypothesis that without an artificial stimulus the housing market tanks. I work in RE and we are expecting a few more amazing months to start, then I think it will tank in June / July. That's assuming we don't see the Fed continuing to buy down mortgage rates and CONgress come up with some other stimulus program... which at this point is looking more and more likely with 2010 elections on the way.
As much as I would love to tell my friends to rush out and how a house now, I just can’t bring myself to do it. Take a look at the chart of US house prices relative to incomes showing that homes are still expensive, and that prices continue to fall. On this basis, Los Angeles, San Francisco, and New York are the most costly markets in the country that are falling the fastest. Bank analysts and lenders take note. Home sales figures are turning soggy again, 25% of homeowners are underwater on their mortgages, a new wave of foreclosures is imminently going to slam the market, and one out of six Americans are jobless and absent from the economy. That eliminates 40% of the buyers from the get go. There is also the mother of all demographic problems overhanging real estate, which no one seems to see but me. If you absolutely have to buy a home, make sure that you pick up one of those once-in-a-lifetime deals where you are taking it off a bank, or out of foreclosure, at 20% below the appraised value. I know these deals are happening. Buy it because you need a place to live, not an investment, and don’t count on selling it for a decent profit this decade. And also don’t expect to get the first born child you are putting up for collateral back until they are a teenager.
I would add, if you are a FTHB who can get an FHA 3.5% down mortgage, the put option is way underpriced, so getting one of those is not a bad deal, as long as you are prepared to walk away.
The upfront cost of the put is 1.75%, soon to be 2.25%, but you can finance that into the mortgage. the ongoing cost is 55bps a year, that is nothing. And if you can monetize the tax credit, you can be in for practically nothing out of pocket.
that is cheap, cheap, cheap to have the option to walk away.
Best of all, you could get one of those mortgages, never make a single payment, and get 2 years free living out of it before the servicer gets around to you.
That is a bargain.
I see the demo problem too. Boomers retiring are not going to help. My prediction. PAIN.. clubber lang
Up 15% over last dec. Keep your eye on the ball
May also be worth some taking a peak at the "vacant" home data published by the Census Bureau. Interesting to note that from the end of '06 through Q3 '09 (quarterly data series), the "homes for sale" classification is flat--thus your seemingly so-so months of inventory data. However, roll-up some / all of the 2.1million vacant housing build that accrued over this horizon in categories like "Held from market", or rental and seasonal properties, and ouila, 14 months of inventory overhang. In total, over 18million vacant homes, a good 10 - 12million of which are "for sale" in the real world. 2 years of inventory overhang anyone?
You have to pinch yourself to remember that all of this STUFF is driven by somebody's actual take home income.
With U6 still not being the focus of anyone's public attention, no sensible addressing of unchecked undocumented labor deflating flooding western labor markets, many state/local governments are looking at another year of furloughs and pay cuts, and "Jobs", well the word "Jobs" means many things, but what is clear is that a "Job" that supported an American family; the mortgage, the cars, the trips to Disneyland and kids' braces is not being replaced with the same job in this post American Empire. That $60,000 middle manager life support position is gone and is being replaced with a $24,000/yr commission based 1099 sales from home scam. Foam or no Foam with that Soy Latte?
When the government bails out the likes of GE and GM and finances the transfer of jobs to China on the taxpayers' future dime and the only idea of "recovery" is "job training" and the fantasy of saying the 'stimulus is saving jobs'; well its pretty clear the real economy is in free fall. And nobody is going to do anything about it.
And this is a year into HOPE and CHANGE?
What did American look like before the Gilded Age?
You are going to witness it yourself.
Wages drive the economy, not welfare. Home prices will continue to go down with real wages. The only way to fix the economy is principal pay-downs on current mortgages (say 30%) and let everyone refinance their home loans at the Discount Window (ZIRP) along with the banksters.
All these full price slavery-interest payments to banks on discounted assets will keep everything down and out.
The money has left the building.
YOY sales are up 15% from last Dec. Keep your eyes on the ball!!
Sure. Good Point. And while we're keeping our eyes on balls, wasn't last Dec. (2008, I assume you mean) about the worst home sales period since houses were invented? So being 15% up from that, while being better than being, say, 15% below that, isn't really all that much of a much?
Are these NAR figures or government figures? How is "inventory" calculated?
As a realtor in So. Ca., the market was hot until with buyers trying to buy before the Nov. tax credit deadline. The market is now soft even with the tax credit extensions since the pending State/local Govt cutbacks are starting to chill the optimism. Lots of shortsales with banks now taking any reasonable offer. Just sold a condo at 50% of 2006 peak prices. The original buyer has never made a payment to the bank, for property taxes, and to the homeowner association. She bought with nothing down and has lived free for nearly 3 years. Pretty smart.
House prices need to resume appreciating toward higher amounts? Why would anyone, other then a complete fool, believe this has to be?
The average family income is around $45,000 per year. By historical standards, this average family could afford a mortgage on house costing between 2 and 2 and 1/2 times their gross income. You mean to tell me house prices aren't $90,00 to $112,500?
Current housing prices are just one big lie! Prices can not exist for houses way beyond the average family's ability to pay for them.
There is no doubt our future is for house prices to come down to realistic levels - even if that means losses must be taken by individuals and banks. Banks must not be allowed to carry these over-priced assets on their books as it is nothing short of fraud to do otherwise.
That's life - win some, loose some.
The Umpire
"+1" doesn't quite do it justice. How about "DING-DING-DING!"? I am not a very sophisticated person, but this is so incredibly obvious it must take highly educated geniuses to ignore it. Price it however you want. When people can't buy it, it's worth nothing.
+1
And, by the way, does anyone know the ratio for income to home prices in China? There was an article here on ZH a while back that seemed to have a really high number....
Why invest in real estate when the asset is over priced? The Government is driving demand for real estate. Without FHA and the other liquidity actions between the GSEs and FED/TREAS, both demand and price would decline.
What is interesting is the short sighted nature of Government solutions to an over priced assets class in the midst of massive debt de-leverage. If the buyers do not exist, for whatever reason, you will not sell.
Most people burned by cheap credit towards an asset their income will not support, will not make this mistake again. You can only blow a sustainable bubble if there is plausibility in your claim that the asset is priced fairly or the market is confident that the asset will appreciate in value. Even if you provide access to easy credit.
It will not take people long to understand that you must live within your means regardless of access to credit. Bubble creation requires confidence that your equity will be protected, or at least maintained. Without this possibility, the transaction eventually will not occur.
Kicking the can will not be as effective in 2010 as in 2009. I expect the asset price effects to spool quicker in 2010.
On a macroscopic level government intervention is not the same as private investment. The leach is bigger than the fish.
Mark Beck
$800,000 houses to be $60k. for real. and lets put homeless people in stuvysant town and peter cooper village. they ain't using it.