4 Month Old Existing Sales Report
The National Association of Realtors put out their mostly worthless report today. After a brief move up, builders are mostly down on the news. The only current information in the report is that there were 80,000 more homes up for sale at the end of November then there were a month earlier.
The important thing to note about the Existing Home Sales report is that it reflects sales that took place about 4 months ago. August was a big month for new home sales, so its not surprising that existing homes sold well then. The January and February releases for existing home sales reports should be even better than this one as interest rates fell on average in September and October, while the report that comes out in March should be in line with the 12 and 13 percent drops we saw for starts and new sales.
As you can see below, existing home sales follow a pretty clear pattern, lagging interest rates and new sales and starts by about 3 months. Using monthly closing averages for the 10-year treasury as a measure of interest rates, here's some historical data:
2003.......Rates.....Starts.....New Sales.....Existing Sales (lagging month)...Median Price
April.......3.94%...1.627 M....1.004 M.......6.19 M...(July)...(not available)
May........3.56%...1.745 M....1.081 M.......6.39 M...(Aug)...(not available)
June.......3.32%...1.844 M....1.200 M........6.68 M..(Sept)...(not available)
July.........3.95%...1.890 M....1.145 M.......6.39 M...(Oct).....$171,800
Aug........4.43%...1.831 M....1.190 M.......6.13 M...(Nov).....$169,900
Sept.......4.26%...1.931 M....1.137 M.......6.37 M...(Dec).....$174,800
Notes: It looks like the steep drop in rates in 2003 really ignited the housing boom. When rates spiked back up, sales dropped off, but builders kept increase their rate of building. When rates spiked up, it slowed existing sales more than new sales, and prices dropped on existing homes. When they started back down again, housing took off again.
2004.......Rates.....Starts.....New Sales....Existing Inventory.... Sales (lagging)...Median Price
Feb........4.07%...1.895 M....1.165 M.....2.28 M.....6.81 M...(May)...$182,000
Mar........3.81%...2.000 M....1.270 M....2.35 M.......6.92 M...(June)...$191,000
Apr........4.33%...1.963 M....1.176 M....2.36 M.......6.72 M...(July)....$190,200.
May........4.70%...1.979 M....1.244 M....2.42 M.......6.55 M...(Aug)...$188,800
June.......4.72%...1.817 M....1.198 M....2.40 M.......6.76 M..(Sept)....$185,700
July........4.48%...1.985 M....1.095 M....2.49 M.......6.75 M...(Oct).....$187,000
Aug........4.27%...2.018 M....1.158 M...2.44 M.......6.94 M...(Nov).....$188,200
Sept.......4.11%...1.905 M....1.227 M....2.39 M...
Oct........4.08%...2.039 M....1.278 M....2.40 M...
Nov.......4.19%...1.771 M....1.125 M.....2.48 M...
Dec.......4.23%...
Notes: Falling interest rates in March and August led to spikes in building and sales, which is also reflected in the "November" existing sales spikes. Median prices also spiked up in March, but they aren't rising as much the on the second spike as inventory is higher.
It will be interesting to see how the inventory story devleops. On average, it probably takes longer to sell a home now, and the prices are less favorable for the seller. It's still too early to tell for sure if the bubble has burst, or if we are but if rates continue up prices will probably fall. Much probably depends on interest rates because they directly effect how much people can afford to pay for a home (easy to see in the data). Rates barely moved up in November, but that had a big effect on the market for new homes.
The strength of the economy also has a big role to play, as the housing boom took off as economy growth surged during 2003 and 2004 and that helped inflate the bubble. A significant economic slowdown would hurt the housing market considerably, and the slowdown we're already seeing in construction is a big strike against the economy.
My own guess is that rates will continue to rise more rapidly in 2005, since most of the spread has been taken out of the yield curve, and the economy will stall, leading to a significant drop in home prices (30%-40%) over the next couple of years. (Slow at first, but quicker when panic and increased foreclosures come to bear.)
Bubble in perspective...
Median Home Sale Prices:
Year......Existing........New
2001...$147,800...$175,200
2002...$158,100...$187,600
2003...$170,000...$195,000
2004...$182,575...$213,833 (averages with November double weighted to make up for Dec)
Note that 2004 is up about 7.4% over 2003 for existing, but the November y-o-y comparison quoted in the press today compares a slow November 2003 against a strong November 2004 (really August in both cases). New home prices were up about 3.9% in 2003 and 9.6% in 2004. |
