Sunday, May 27, 2007

Existing Home Sales are Down and Inventory for Sale is Up . . .

Existing home sales are down and inventory of houses for sale are up according an article in the Wall Street Journal. This is all occurring the strongest portion of the year to sell houses.

Sales of existing homes slipped in April to their slowest pace since June 2003, and a rising inventory of unsold properties appeared to set the stage for weaker prices.

The 2.6% decline from March, to a seasonally adjusted annual rate of 5.99 million homes, followed a revised 7.9% drop in March. April's sales rate was down 10.7% from a year earlier, figures from the National Association of Realtors showed.

The number of existing homes for sale jumped 10.4% at the end of April to 4.2 million, equal to 8.4 months' worth of sales at the current selling rate, up from 7.4 months in March. The unsold properties relative to sales hit a 15-year high.

Finally someone has addressed the issues with using median home prices without stating the mean home price.

The median home price in April of $220,900 was just 0.8% below the year-earlier level. The median price can be misleading because the mix of sales between higher-and lower-priced homes changes. Lately, there may have been fewer sales of cheaper homes because of the huge drop in subprime lending. That would tend to skew the median higher, suggesting home prices may actually be declining more than the reported median suggests.

Everyone is entitled to their opinion, but the following statement is a little baffling. Where is all the strength in housing demand supposed to come from when the strongest portion of the year is weak and most economists are projecting slow economic growth throughout the remainder of the year.

. . . . That "short-term disruption" from a meltdown among subprime lenders put April's sales pace about 5% lower than anticipated earlier, said Mr. Yun, who expects "very minimal" price declines and an overall market turnaround in coming months.

In addition, he said, the sudden rise in inventories is due in part to existing homeowners seeing an opportunity to trade up -- leading them to list their current homes on the market while they shop. "It could be implying that existing homeowners are feeling a little more confident about reentering the market," Mr. Yun said.

Below is a good example of knowing how your data is defined to make sure that you compare apples to apples. It looks like the comparison of new and existing home sales is more like apples and oranges.

Existing-home sales are recorded at settlement, so April sales could reflect contracts signed months earlier. New-home sales, which are recorded when a contract is signed or deposit made and are thus a more timely indicator of home demand, jumped a surprising 16% in April from March, the largest monthly increase in 14 years, according to a report Thursday by the Commerce Department's Census Bureau. It showed strength especially in the lower-cost South, helping median prices drop 10.9% to $229,100.

But many analysts are skeptical that new-home sales are as strong as that report suggests, noting the data are not adjusted for cancellations and are based on a small sample. Existing home sales, which include condos, townhouses and co-ops, account for about 85% of total home sales.

"The disconnect between the April new-home data and other housing-demand indicators hints that the volatile and often-revised new-home data overstate the improvement," said Richard Berner, chief U.S. economist at Morgan Stanley, in a note to clients. "And still-high inventories of unsold homes imply further downside in housing activity."

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