8-23 July Existing Home Sales Reality
August, 23 2009 | markmti |Note to blog readers:
On Tuesday July 18th I released two detailed research notes warning clients of a potential miss coming Friday in the July m-o-m and y-o-y Western Region and national Existing Home Sales reports. Additionally, I highlighted Sept and Oct 2008 as months that will be nearly impossible to beat in 2009. On Friday following the release of the monthly existing sales data I released two additional notes — the second of which is reproduced below — that defend this call by highlighting the detail that was not reported in NAR’s official press release. Mark Hanson
*This note was first published as part of the Mortgage Pages research series on 8.21.09
Good Afternoon,
I love beating dead horses. I also love perspective because there is so little of it going around. This is an update to my previous report this morning on July Existing Home Sales.
Below are three additional charts I just threw together in order to provide further clarity. The first is of monthly Existing Home Sales from 2005 through 2009. The second is of Jan through July ytd sales going back 5-years. The third is June vs July sales going back 3-years.
These charts are of actual monthly sales and not annualized seasonally adjusted sales as NAR reports. How can NAR model seasonality when this is the first year in history — and the history of NAR — when distress sales made up so much of total sales and distress sales have not been proven to follow any trends other legislative and default?
Annualized seasonally adjusted figures have guess-work built in and have led to many bad calls over the last couple of years. There is no need to report house sales this way unless the reporting body needs flexibility of outcome each month.Why not just count the houses that sold each month and analyze — that is what we do.
In the first chart below look at the black oval. That red line (2009) slightly above the yellow (2008) represents 2009 beating 2008 by 45k sales in total for June and July. But from Jan to May, 2009 was the weakest year in years.
Ok, I get it — -after so many years, we finally have a beat. But look at what was thrown at it in order to get this rounding error. We have thrown in a trillion dollars to buy rates down, countless $8k tax credits, mortgage mods, foreclosure moratoriums plus hundreds of billions more, and it only bought 45k y-o-y additional sales over June & July combined.
After a 50% to 70% price hit in the hardest hit areas — that are also the busiest now — only 45k sales out of 2.8 million sold this year are responsible for the national consensus that housing has bottomed. This of course is leading to a renewed belief that the consumer will recovery quicker than previously thought.
Don’t forget that conditions were absolutely perfect in the first seven months of the year with respect to prices, rates and supply. And from March to July seasonality is always a significant factor.
But now as we move out of the summer selling season the seasonality goes away and rates are at least 1/2% higher across the board now than the average for Q1 – Q2. In addition, low cost foreclosure supply has rapidly evaporated due to the servicers keeping it off the market on purpose and the Admin’s mortgage mod initiatives & scare tactics that have kicked a million foreclosures down the road to whenever. This foreclosure pipeline supply reservoir is fuller than it ever has been and when the dam breaks, it poses a real threat.
The biggest problem for bottom callers in the chart below is second half sales. They remained elevated relative to the sharp seasonal decreases seen in previous years. They set 2009 second half sales up for the perfect national miss.
In July the Western Region missed badly. And as I discussed in detail in the first report, the July national monthly sales would have also missed if not for 16k extra mystery condos selling in the Northeast region. Most importantly, ex-condo Existing Home Sales, which make up the lion’s share were down m-o-m from 465k in 2008 to 460k in 2009. In my book, that is the housing market getting worse.
Today’s Existing Sales report was as close as it gets. The NAR’s annualized seasonally adjusted slight of hand made the beat appear bigger than it really was.
Last but never least, prices were down again. Always remember that for every person that get a great deal on house, orders of magnitude more are thrown into a negative-equity (or deeper negative-equity) position exponentially increasing their likelihood of loan default.
The chart below shows Jan through July monthly sales totals for the past five years. Once again, 2009 is the weakest.
The final chart shows June and July sales from 2007 – 2009. This is what the greatest amount of stimuli ever has purchased. In a nutshell, of 2.8 million houses sold ytd 2009, only 44k more houses sold in June and July 2009 vs the same time period last year. The takeaways are 1. July 2009 sales are down m-o-m 2. July 2009 sales are only up 24k units over the worst year for housing on record — 2008. June sales were up 20k y-o-y 3. Median prices are still falling.
Bottom Line: Be careful going forward — with strong consensus that housing trouble is in the rear view mirror a miss next month could produce an outsized reaction.
Best Regards,
Mark Hanson
