Existing Home Sales Up 3.6% in June, Why That Is Not Enough

By
Real Estate Broker/Owner

The NAR announced this week that existing home sales rose 3.6% to a 4.89 million seasonally adjusted rate, the strongest pace since October of 2008.  The rate of sales while encouraging, is still off -0.2% from last year despite an $8,000 first time home buyer tax credit and record housing affordability.

Inventory of existing homes for sale fell -0.7% from last month to 3.823 million and is down -14.9% from the same time last year.

The result is that the month's supply of housing is down -4.1% from last month to a 9.4 month supply and is down -14.5% from June of last year.

Without question, there are all positive indicators.

But without a doubt, these indicators do not give the most accurate representation of the housing market in terms of the supply of homes (foreclosures) and subsequently, the month's supply of housingThis is only the eye of the storm.

We know that home values are driven by supply and demand.  We also know that in terms of the supply of homes, there are a couple of factors that NAR's numbers do not reflect.

1.)  There is a "shadow" or bank inventory of foreclosed homes estimated by some to be as many as 700,000 homes.  The banks have not flooded the market with these properties yet.

2.)  There were massive foreclosure moratoriums that only recently expired at the end of March.  These foreclosure moratoriums have blunted the effect of foreclosures numbers.

3.)  According to RealtyTrac, foreclosure filings are actually up 33% from last year.

4.)  Many economists agree that unemployment won't peak until mid 2010.  Most banking analysts agree there is a correlation between unemployment and foreclosures.

5.)  There are billions in loan resets for option-arms and alt-a loans coming due over 2010, 2011, and the first part of 2012.

6.)  According to the MBA, a record 12.07% of all mortgages are at least 30 days late.

So while demand for real estate appears to have stabilized due to favorable mortgage rates and tax incentives, the concern is that demand is still insufficient in being able to absorb the number of foreclosures that are about to make land-fall.  This means that prices are going to fall further.

 

Comments (31)

John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Mark - Many in government, trade associations, and others whose perceived success is dependent upon reports of improvement in the housing market are just spinning the numbers to reflect their optimism.  It is equally easy to point out, as your numbers show, that housing is still in deep trouble relative to its past successes.  

We can point to signs of recovery each month, but it won't change the underlying truth.  Thanks for the update.

Jul 26, 2009 05:17 AM
Lonn Dugan
Toledo, OH

Yeah, that's a buzz killer:

3.)  According to RealtyTrac, foreclosure filings are actually up 33% from last year.

Jul 26, 2009 05:25 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Mark,  I agree with your pessimistic outlook but hasten to add that some areas actually have some price support and buyer activity.  Lets hope it spreads enough to sustain some market momentum !

Jul 26, 2009 05:53 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

The "shadow inventory" seems to be a bit of a boogeyman in my market.  People are holding off and waiting for it because they got that sage advice somewhere.  In the meantime:  Fannie and Freddie have been dumping them out since early June and Wells and Indy serviced loans started coming out in late June/early July.

Buyer interest here is so flipping high that the inventory is getting eaten up as soon as it hits the market.  We only have 11,800 homes actively listed with over 13,300 pendings.  By my estimation, we need another 15,000 homes dumped on the market overnight to pull this thing out of a seller's market.  We are getting about 150-300 new listings a day but I am tellin ya, they are flyin off the shelves if they are priced right.

 

Jul 26, 2009 07:26 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Thanks for the concise statement. Looks like there is a ways to go before we are out of the woods.

Jul 26, 2009 08:13 AM
Anonymous
Anonymous

We have been lucky here in Central Virginia, not hit nearly as hard as the rest of the country. We are still way behind where we should be but our foreclosure rate is very modest. Have no reason to think it will change.

Our sales have been increasing every month since January as have our prices and inventory. All good signs.

In fact a buyer of mine was beat out of house today by another offer. He lives in Florida and I think his perception is that things are bad like in Florida.

He delayed and we both lost.

Jul 26, 2009 08:15 AM
#17
Norma Brandsberg
Marks Realty Co. Inc., Lynchburg, VA, 540-586-9496 - Forest, VA

We have been lucky here in Central Virginia, not hit nearly as hard as the rest of the country. We are still way behind where we should be but our foreclosure rate is very modest.

Have no reason to think it will change.

Our sales have been increasing every month since January as have our prices and inventory. All good signs.

In fact a buyer of mine was beat out of house today by another offer. He lives in Florida and I think his perception is that things are bad like in Florida.

He delayed and we both lost.

Jul 26, 2009 08:17 AM
David L. Montgomery
MULAMONT REALTY, LLC - Pontiac, MI
David L. Montgomery

Well Michigan is still bouncing at the bottom.  Our pending home sales are down.  We're still playing catch-up.

Jul 26, 2009 09:31 AM
Mark MacKenzie
Phoenix, AZ

Sue:  Indeed. :)

Dorie:  Please note that the numbers I mention are the seasonally adjusted annual rate.  The not seasonally adjusted numbers are up 17% for existing home sales from last month.  There is indeed a small improvement even when you take out the seasonal impact.

Tim:  Good assessment.  I'm not sure how long until the higher end market begins to recover.  What we are seeing right now unfortunately is not organic, it is not going to trickle up.

Brian:  Don't get me started on new taxes. :)

Sea to Sky:  Thank you.

John:  But the numbers beat Wall St. expectations. ;)

Lonn:  That is a sobering statistic. 

Bill:  Agreed.  There are not many markets, but certainly in Phoenix, Las Vegas, CA, and some markets in FL, buyers have indeed come out because of the massive home value declines.

Erica:  That sounds about par for 90% of the markets in the country.

Renee:  I have certainly seen this.  Please see my first response to this blog post.

 

 

 

Jul 26, 2009 10:10 AM
Mark MacKenzie
Phoenix, AZ

Lise:  Indeed.  I still believe that we have another 3-4 years of this type of market before we can work through all of the foreclosures that will inevitably come to the market, maybe longer at this pace.

Norma:  With rising unemployment, all bets are off for foreclosures.

David:  I feel really bad about what communities in Michigan are going through.  You have an additional obstacle to overcome with the job losses related to the car industry.

 

Jul 26, 2009 10:14 AM
SacramentoCommercialLoans Bank Turn downs welcomed
Sacramento commercial loans - Sacramento, CA
Quick closings 916-847-7212

Perception that is all that matters to some. Sure things are up it can be up 100% for all anyone cares but when over all it is down a 1000% we are not even breaking even. Good post Mark. 

Jul 26, 2009 10:42 AM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

It is only the beginning.  When I stop getting calls about what to do or how to plan their foreclosure then I'll believe the end is in sight.

Jul 26, 2009 10:59 AM
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Mark -- You have a good overview of things, something that lacks in this decentralized market called real estate.

Jul 26, 2009 12:51 PM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Hi Mark

We have to continue to work on getting the monthly supply of homes down to about 6 to 7 months, also I agree that the shadow inventory could be an issue.

Good luck and success.

Lou Ludwig

Jul 26, 2009 01:41 PM
David O'Doherty
Raleigh Realty Inc - Clayton, NC
Clayton NC Homes, Raleigh, NC

Hi Mark, hard to read this but I think you raise some good points!

David

Jul 26, 2009 02:26 PM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

We have to roll through the ugly to get to the less ugly... 

Jul 26, 2009 03:20 PM
Joel Weihe
Realty World Wichita - Wichita, KS

The shadow inventory is huge plus I believe many more foreclosures to come. There are a lot of people hanging by a thread with unemployment about to run out.

Banks are being very quiet about the true situation. This rally in the stock market is given people false optimism.

What will happen when the Government incentives run out. Right now I'm living on first time buyers, pulling people out of renting.

I blogged about the good numbers trying to get people excited, but in my heart, I know.

Jul 26, 2009 03:52 PM
michelangelo vasco
mvp realty inc. - Manhattan, NY

Have gotten to the point where I don't even think about where the market is going, as brokers we need to concentrate on closing our last deal and finding the next...Just taking it one deal at a time

Jul 26, 2009 09:46 PM
Teresa Boardman
Boardman Realty - Saint Paul, MN

In our local market th inventory is declining and it is the lowest priced homes that are selling.  Home in some areas and higher priced homes just sit. There can not be a recovery of the housing market until there are jobs and the unemployment rate in MN is at an all time high.  It will be interesting to see what happens when that next wave of foreclosures hits.

Jul 26, 2009 10:08 PM
The Kasey Group
Stratford, CT

Informative post.. We are seeing an increase in homes sales in our area.

Jul 27, 2009 03:28 AM