Existing Home Sales, Median Prices Increase in May
WASHINGTON (Dow Jones) -- Existing-home sales improved again in May, but falling prices and bloated supply promise to make a housing sector recovery slow.
MP: That's one way to look at it. Here are some alternative views:
1. The April to May increases in median home prices (3.84%) and mean home prices (3.26%) were the largest monthly price increases in more than a year (data here).
2. The monthly May increase in both median home prices (3.84%) and homes sold (2.36%) was only the second time in at least a year that both prices and unit sales increased in the same month.
3. The back-to-back increase in home sales in both April and May is the first time in at least a year of two consecutive monthly increases.
4. The most recent two-month increase in sales of 4.84% is the largest since April 2004 (source).
5. The 9.6 months supply of inventory in May is below last year's May level of 10.9 months by more than five weeks, and is at the second-lowest level in the last year.
According to Brian Wesbury and Bob Stein:
The data today are consistent with our outlook that the economy is recovering from a panic. Home sales, building activity, and the rate of decline in home prices all seem to be bottoming or have already formed a bottom. In fact, the level of existing home sales in May was the highest since October 2008.
Posted @ 11:33 AM Post Link
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Now this is interesting because there seems to be (operative word is 'seems') conflicting stories from Bloomberg News vs. that of the WSJ...
I found the following via John Lott's website:
From Bloomberg News: U.S. Home Prices Drop 6.8 Percent in April as Foreclosures Rise
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The housing slump has reduced the median price of an existing home 26 percent from the July 2006 peak, pushing affordability to near record levels. Prospective buyers are now being constrained by rising mortgage rates, the highest unemployment since 1983 and concern the housing rebound will be anemic.
While U.S. builders increased housing starts by 17 percent in May to an annual rate of 532,000, a May 26 report from S&P/Case-Shiller showed home prices in 20 U.S. metropolitan areas fell 18.7 percent in March from the same month last year.
(skip)
President Barack Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes. The government is also offering a tax break of as much as $8,000 for first-time homebuyers and incentives to lenders to modify delinquent home-loans.
Falling Behind
Those efforts may not be able to keep up with the rising number of Americans falling behind on their mortgages. U.S. foreclosure filings are forecast to hit a record 1.8 million in the first half of this year, according to RealtyTrac Inc., the Irvine, California-based seller of default data. Filings surpassed 300,000 for the third straight month in May, RealtyTrac said on June 11.
Non seasonally adjusted existing home sales have declined every month in 2009 on a year over year basis. With the recent uptick in mortgage rates, it seems probable that the June sales data will make it 6 for 6.
Why anyone would use NAR stats to determine pricing is beyond me when far superior metrics such as Case Shiller or FHFA point in the other direction.
Median house prices are a piss-poor measure of house price changes for many reasons, not the least of which is that it is not a constant quality index.
Nevertheless, the FHFA and Case-Shiller HPIs are showing some slowing of house price declines in most markets, but they are still negative from the previous year.
That's a positive sign for eventual recovery, but the operative word is "eventual."
If you're in a submarine and running out of air, it might be encouraging that you managed to keep your boat from descending to crush depth, but unless you can get to the surface soon, you're just as dead.
The analogy is the same for housing. Every quarter of negative house price growth, no matter how slight, adds to the inventory of houses under water and the depth of those already under water. This negates refinancing and modification opportunities and pushes more borrowers past the threshhold of foreclosure.
There's no reason to believe declining house prices must soon rise to the surface and start flying. House prices were at or below year-ago levels in California for 18 consecutive quarters in the 1990s. There were many decreases in the rate of decline which turned out to be false positives for recovery. There's no guarantee of a V. Recovery can be an L, a W, a WW or a WWW.
If you're constantly calling a bottom whenever the second derivative turns positive, you'll eventually be right about recovery but that doesn't make you a prophet. That condition is necessary but not sufficient for a turnaround. It is sufficient only for a local minimum.
More than 40 states are at or near their record-high levels of past due mortgages, foreclosures started, and foreclosure inventories and those rates are predicted to push even higher.
Sales are up from the previous year in only 6 states where prices have fallen the most. Most states have falling house prices AND falling sales volumes.
Completely dismiss any of the so-called good news about rising housing starts. Monthly data is volatile and seasonally influenced. Housing starts are down from a year ago in every state except for South Dakota. The decline in housing starts is accelerating in 43 states.
1-4 family building permits are down from a year ago in all 51 states and DC and the decline is accelerating in more than 30 states. Hence, no construction recovery anytime soon.
As Edward Leamer showed, residential investment and durable goods almost always lead an economy out of recession. Residential investment is declining at an increasing rate. Personal expenditures on durable goods have fallen the most year-over-year at the fastest rate in 60 years but showed some sign of moderating in 1Q09. At -10%, there's still a long way to go to get back to positive.
Robert, your comment is worth a post somewhere in the blog-o-sphere. Great stuff.
Not to worry, the same geniuses who got us into this mess are busy solving the problem as I write:
Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.
WSJ
What could possibly go wrong?
Folks, we are discussing a bottom not the fact that the housing situation is dismal. The NAR was not honest in their forecasts in 2008 and were rosy based on the hope for stable employment. That scenario did not happen (duh) but I think their statistics are true even if the forecasts are suspect.
My work as a property owner of
various multi-family buildings puts me in contact with many vendors. The mood is more upbeat and activity is growing from a stagnant situation this last winter.
@ Mr. Miller
What is the 51st state? I hope it is someplace with lots of oil and beautiful women. Let's start an exploration company and have a man-cession with these women as wildcatteres -- growl.
@Gettingrational
51 (states and DC). Does that clarify things? Most national analyses include DC among states and, occasionally, Puerto Rico. I'd go for Puerto Rican women but you can keep the DC hood rats.
I have no doubt that the NARs data is accurate. The question is whether median home price changes are a good statistic for house price changes. Every major researcher shuns medians for a number of reasons which is why OFHEO/FHFA and Case-Shiller invented better indices.
When sales volume is low, the standard error of the sample median is high and the statistic is biased. So a hypothesis test of rising house prices is invalid. The median also does not hold house quality constant which the others control for by using same-home sales.
What city are you in? If you're in multifamily housing, you're likely in a world of hurt. Rents are forecasted to fall, property values are falling, cap rates are rising, financing is virtually nonexistent, and vacancy rates are rising. The only consolation is that at least you don't own retail, office, industrial or hotel properties which are doing worse.
@ Mr. Miller
Thanks for the clarification on median house price (NAR) v. Case-Shiller Index. At least we can agree existing home sales are rising.
My location is the state of Washington and yes it is a more difficult. People comment to me all the time that business must be good because folks are moving out of homes. I tell them it is not true due to "doubling up" on mass scale.
Here in Toronto, after horrifying 50% sales declines in December and January, the situation is completely optimistic, sales rising again after many months, so the average price...I believe RE crisis is over here!
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