National Association of realtors -- Washington, August 24, 2010

Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of realtors®.

Notice how carefully the NAr spins this disastrous headline. First, they fail to mention that the sales fell to a record low. Second, they suggest that a decline of this magnitude was expected. And third, they add that prices rose even though the rise was tiny and more likely attributable to a changing mix rather than an increase in value. So they downplayed the devastating truth and added some feel-good nonsense to soften the blow. It is laughably obvious, and it should be embarrassing, but this is the NAr.

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

How can this be interpreted as any way other than a complete catastrophe? We have more people and more homes than we did in 1995 or 1999, yet we managed to sell far fewer homes. The viability of the housing market is in question. It certainly appears that prices are going to have to come down for transaction volumes to increase. We already have record low interest rates. Doesn't record low sales and record low interest rates suggest that prices are too high?

Lawrence Yun, NAr chief economist, said a soft sales pace likely will continue for a few additional months. “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.

The pace of recovery could pick up quickly? You better buy now, right? Lawrence Yun has mastered the art of bullshit over the last few years. He obviously has no conscience. At least he bothered to add his weasel statement about the economy consistently adding jobs. Since he knows that isn't going to happen, he can always argue that his prediction would have come true if the condition had been met.

“Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years,” Yun said.

More spin. First, do you think the activity in the first half of the year truly healthy? The housing market was smoking government tax-credit crack, and buyers purchased in a stupor. Now that the stimulants are gone, the market is crashing to sleep it off. Second, the annual sales rates over the last 20 or 30 years should be lower than today; we had fewer homes! If you adjust the current sales rates for population or housing stock, the rate would be at an all-time low. This is a blatant misuse of statistics.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009. Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.

Mortgage interest rates are at the lowest level every recorded too.

The national median existing-home price² for all housing types was $182,600 in July, up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.³

“Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses,” Yun said. “Over the short term, high supply in relation to demand clearly favors buyers. However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward.”

Volume always precedes price. There almost certainly will be a measurable downward change in home prices going forward. I will agree with Yun that prices will not be going up any time soon. Notice that when the signs are unambiguously bearish, the furthest he will go is to say the prices will remain flat.

Months of Supply hits highest level ever recorded

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply⁴ at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

While we are looking at housing market records, the months of supply of homes on the market is at an all-time high. We have high unemployment, record low sales, increasing inventory, and record high of months of supply. How do prices hold up with pressures like that?

NAr President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said there are great opportunities now for buyers who weren’t able to take advantage of the tax credit. “Mortgage interest rates are at record lows, home prices have firmed and there is good selection of property in most areas, so buyers with good jobs and favorable credit ratings find themselves in a fortunate position,” she said.

She had to slip in the nonsense about prices firming to convince people that it is okay to buy when its likely that prices will be heading lower. Although, to be fair to her, in Arizona where she is, prices have already been crushed, so prices don't have near as much bubble air in them as they do in Orange County.

A parallel NAr practitioner survey shows first-time buyers purchased 38 percent of homes in July, down from 43 percent in June. Investors accounted for 19 percent of sales in July, up from 13 percent in June; the balance were to repeat buyers. All-cash sales rose to 30 percent in July from 24 percent in June.

Single-family home sales dropped 27.1 percent to a seasonally adjusted annual rate of 3.37 million in July from a pace of 4.62 million in June, and are 25.6 percent below the 4.53 million level in July 2009; they were the lowest since May 1995 when the sales rate was 3.34 million. The median existing single-family home price was $183,400 in July, which is 0.9 percent above a year ago.

Single-family median existing-home prices were higher in 11 out of 19 metropolitan statistical areas reported in July in comparison with July 2009 (the price in one of 20 tracked markets was not available). However, existing single-family home sales fell in all 20 areas from a year ago.

This is a broad-based drop. All real estate may be local, but all local markets are seeing the same dramatic decline in sales.

Existing condominium and co-op sales fell 28.1 percent to a seasonally adjusted annual rate of 460,000 in July from 640,000 in June, and are 24.0 percent below the 605,000-unit level in July 2009. The median existing condo price was $176,800 in July, down 1.7 percent from a year ago.

Condo prices have already rolled over.

... Existing-home sales in the West fell 25.0 percent to an annual level of 870,000 in July and are 23.0 percent below a year ago. The median price in the West was $224,800, up 3.3 percent from July 2009.