A Bottom in Sales, But What About Prices?
By: Stan Humphries, Chief Economist | August 24, 2009
The National Association of Realtors (NAR) announced Friday that existing home sales in July rose 7.2% over June levels (from 4.89 million sales, seasonally adjusted annual rate, to 5.24 million), marking the first time since 2004 that annualized sales have risen four consecutive months.
This is great news for real estate as the market firmly climbs away from its bottom in home sales (low point of about 4.5 million home sales per year) and many are interpreting it as an indication that a bottom in sale prices is not far behind. As I noted last month though, a key number that we should be keeping our eye on is the inventory level of existing homes for sale. Digging deeper here, one still finds considerable reason for concern. In June, the troubling issue was that the increase in the pace of existing home sales was almost matched by an increase in the rate at which homes were being added to the existing inventory (i.e., people putting their homes on the market). That month, 521,000 homes were sold and 481,000 homes were added to the for-sale market.
In July, this pattern got even more lopsided with more homes being added than were actually sold during the period. In July, 532,000 homes were sold but 812,000 homes were added to the market (see Figure 1). The net effect of this fact is that inventory levels (number of homes for sale) actually increased from 3,811,000 in June to 4,091,000 in July (a 7.3% increase in inventory compared to an increase of 7.2% in home sales). Monthly supply - the number of months it would take to work through the inventory of for-sale homes at the current rate of sales - remained unchanged at 9.4 months of supply (see Figure 2). It would have actually increased were it not for the higher pace of sales.
It’s hard to see where the upward pressure on prices is going to come from near-term given that supply of homes on the market remains so high. And it could prove hard to push supply levels down with so many foreclosures streaming in and with so many homeowners who’ve been sitting on the sidelines thus far starting now to dip their toes into the market.
Figure 1 below shows the Home Sales versus New Supply and Figure 2 below shows the Zillow Home Value Index and Monthly Supply of Existing Homes for Sale.
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Comments
8 Comments so far
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Brandon Green on August 24, 2009 7:14 am
I agree–foreclosures are going to keep putting pressure on real estate prices.
Gainesville Foreclosures on August 24, 2009 9:23 am
I don’t know, but after three years the inventory and price charts finally look bullish from a technical analysis standpoint.
Josh Galvan on August 24, 2009 9:37 am
The charts do look bullish but their seem to be a lot more variables than just the ones in the article when determining the direction of the market.
abe vigoda on August 24, 2009 9:54 am
We are due for the next leg downward, due to a combination of
1. REO’s that were stalled or put off but are now coming to market
2. Unemployment numbers rising
3. FLippers that bought at the “bottom” and now listing them at the first uptick
4. Over the next 12 months, almost 50% of mortgage owners will be underwater
5. Prices are still not in line with historical averages
6. Our demographics as a country are changing and the baby boomers are retiring not raising kids
7. There is a huge shadow inventory of houses that will be put on the market if prices rise
There’s about a dozen more reasons, but suffice to say after the biggest real estate bubble ever, it is going to take more than 3 years and a 30% correction from the highs to claim victory.
Patrick Turner on August 24, 2009 11:58 am
I don’t think we’ve seen the bottom yet but there are plenty of great opportunities to buy out there. First time homebuyers and even seasoned investors can benefit from reading this book:
http://www.lawlessinvesting.com
lynnepope on August 24, 2009 6:22 pm
In Torrance the West section has had a lot of movement for the start of School- West High in particular. I could see that here we have 2.5 ms inventory overall. Your article showed me the actual fact and that for every one going into escrow another one or two are cropping up. I also hear that Sept 15th there will be another pouring out of REO’s. We will have to see if any are in our area. So far not much. Thanks for the insight.
DebtFree on August 25, 2009 8:53 am
Abe Vigoda’s post above is right on the money.
Unemployment will pass 10% in the next few months, with many US jobs offshored and never to return.
The “delinquency rate” for Residential Mortgages in the 2nd quarter 2009 has skyrocketed to 8.84%:
2000 Q1: 2.00%
2000 Q2: 2.00%
2000 Q3: 2.13%
2000 Q4: 2.28%
2001 Q1: 2.30%
2001 Q2: 2.40%
2001 Q3: 2.24%
2001 Q4: 2.23%
2002 Q1: 2.24%
2002 Q2: 2.15%
2002 Q3: 2.11%
2002 Q4: 1.97%
2003 Q1: 1.98%
2003 Q2: 1.82%
2003 Q3: 1.73%
2003 Q4: 1.78%
2004 Q1: 1.65%
2004 Q2: 1.60%
2004 Q3: 1.59%
2004 Q4: 1.38%
2005 Q1: 1.43%
2005 Q2: 1.55%
2005 Q3: 1.58%
2005 Q4: 1.63%
2006 Q1: 1.60%
2006 Q2: 1.62%
2006 Q3: 1.76%
2006 Q4: 1.93%
2007 Q1: 2.04%
2007 Q2: 2.32%
2007 Q3: 2.77%
2007 Q4: 3.03%
2008 Q1: 3.72%
2008 Q2: 4.45%
2008 Q3: 5.24%
2008 Q4: 6.31%
2009 Q1: 7.85%
2009 Q2: 8.84%
Home Sales Up, Housing Prices Still Down? on August 31, 2009 10:23 am
[...] Zillow blog had a good article by Stan Humphries, Zillow’s Chief Economist that might give us a better reality [...]