Home Sales Surprise Again

Posted by: Maya Roney on May 25, 2007

More housing statistics shockers today: the NAR said sales of previously-owned homes fell 2.6% in April to an annual rate of 5.99 million, the lowest level in nearly four years. Month’s supply moved up to 8.4 months, the highest since the early 1990s. The announcement came in the wake of a government report that showed a jump in new-home sales in April, so it was dubbed “unexpected.” But I can’t say I was surprised this time.

Neither was NAR senior economist Lawrence Yun—in fact, he seemed downright pleased. “We’ve been anticipating slower home sales because many subprime loan products are no longer available,” he said. “In addition, increased scrutiny by lenders is stopping risky mortgage origination, which is good for both consumers and he lending community. Fortunately, a wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help to stabilize the market going forward.”

I spoke with Yun the other day for an article on April home sales (our new-home prediction was off but we were right-on with existing) You can read it here.

So why did new-home sales increase and existing-home sales decline? “The new home sales numbers tend to lead the existing home sales numbers by a month or two, because a new home sale gets recorded when the buyer signs the initial papers or makes a down payment, while an existing home sale gets recorded when the transaction closes,” notes Global Insight economist Patrick Newport. “The new home sales, therefore, point (tentatively) to better existing home sales numbers down the line.”

Reader Comments

rich

May 25, 2007 12:17 PM

Maya, you keep missing it! New home sales increased while existing home sales declined because new home sales are "deal-driven." Homebuilders can make any deal they want, and a deal is not a sale. Most existing home owners can't afford to do cut-rate deals, and an existing home sale registers a contract, not an iffy deal.

Here's what you need to know to report accurately on the housing market. Over the next 4-5 years, there will be, on average, about half a million foreclosures or short sales per year, unless interest rates drop dramatically. The vast majority of foreclosures/short sales will displace a new home sale in the supply-demand balance. Housing starts will have to decline to under 1.0 million SAAR and stay there for 1-2 years to put a dent in the inventory overhang, which is already set to increase to about 10-12 months through November 2007. Stop guessing based on flimsy knowledge. Trust me.

The bottom in housing won't be hit until inventory overhang, as reported by NAR, returns to about 4-5 months. That's at least 2-3 years off.
There aren't enough qualified first-time buyers out there to do it any faster. The pool of qualified first-time buyers who can afford a conventional mortgage has been greatly depleted. That's the story you should be writing.

Bob

May 25, 2007 2:22 PM

I agree with Rich. The media is really missing the boat. Are you guys funded by real estate ads?
New home sales jumped becaused they dropped their prices by 11%. Also, new home sales are actually DOWN YOY. I don't konw why the media cant accurately report on this topic. You really should feel embarassed to be bully'd like this.

The headline for new homes should have read this...

"New home prices drop 11% in one month and sales are up 16% in one month but still down 10% YOY"

That would have been honest and upfront.

shtove

May 25, 2007 4:24 PM

Read her previous article - it pretty much covers your criticisms.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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