Source: Las Vegas Sun
NAR released its May existing home sales report today. This was one of the most bizarre existing home sale reports I can recall.
First of all, the expectation of a drop in sales activity was widely expected due to the end of the federal tax credit, yet economists surveyed were anticipating an increase in sales in May? Real estate professionals were bracing themselves for a decline in sales in May.
Economists surveyed by Dow Jones Newswires expected existing-home sales to climb by 5.0%, to a rate of 6.06 million. The surprise decline followed two increases driven by a tax incentive for first-time buyers that the government enacted to spur a housing sector recovery.
I viewed the impact of the tax credit as “poaching” sales from the next 60-90 days rather than a vehicle to jump start the housing market. We really need jobs first.
But if you look closely at the data, M-O-M sales were up or flat in each of the 3 regions except the northeast, which posted an 18.3% seasonally adjusted decline.
The report headline was generally accurate “May Shows a Continued Strong Pace for Existing-Home Sales” if you remove the northeast from consideration.
Sales price showed the same pattern. While US prices were up 2.7% M-O-M, the northeast prices declined 2.2%.
My interpretation of this “Northeaster” centers around foreclosures. The south and west posted significant foreclosure activity and price declines nearly 2 years ahead of the northeast. The midwest hasn’t seen the same volatility as the other regions. Perhaps the west and south have been pummeled enough that they are actually seeing a bottom in both sales and prices trends. Foreclosure activity is flowing freely while the northeast seems to be lagging in that regard.
Ok, I’m reaching through generalizations but why the disparity by region?
Here are this month’s metrics:
Last January I moderated a distressed property panel at the Inman Real Estate conference in New York. One of the panelists was Travis Waller, a sharp real estate agent from New Jersey who spoke with great clarity on his specialty, distressed real estate. In this podcast we have a great conversation via Skype on what life will be like after the end of the federal tax credit for first time and existing home buyers, how banks are coming to grips with property disposition, differences between short sale and foreclosure transactions, marketing distressed property, to name a few.
Check out the podcast.
NAR released its PHSI today and there were no surprises. The expiration of the federal tax credit for first time buyers and existing home owners (signed contract by April 30, close by June 30) showed its impact on sales trends.
By the way, my above chart shows how ridiculous seasonal adjustments are – the non-seasonal adjusted line better reflects whats going on.
The pending sales data set is about 20% the size of existing homes and is comprised of existing single family and condo sales. Its dubbed a forward looking index but it really is a current looking index. The “meeting of the minds” between buyer and seller occurs just before contract signing. Its forward looking in the context of closing data but it is not forward looking on the condition of housing.
Consecutive M-O-M Gains
Analysts have expressed fear the housing market will suffer with the end of the government subsidy. But the job market has been improving. The Labor Department is scheduled this week to release employment data for May, and economists surveyed by Dow Jones Newswires are expecting a gain of 515,000 non-farm payroll jobs.
The same thing happened last fall as the initial tax credit within the federal stimulus plan was set to expire on November 30 only to be renewed and expanded a few weeks later. No renewal this time.
Regionally things were not so consistent. Month over month gains in
Buyers they better close by June 30th. Not an automatic assumption in today’s mortgage environment.
Just a bit of house cleaning…err NAR’s Pending Home Sales Index being released at 10am this morning.
I’ll be on The Hays Advantage show with Kathleen Hays on Bloomberg Radio talkin’ pending home sales (contracts) today at 12:30 on AM1130, XM channel 129 or SIRIUS channel 130.
Always enjoy being on her program.
I sat down with Dottie Herman, President and CEO of Prudential Douglas Elliman Real Estate to talk about her journey from certified financial planner to one of the most successful real estate brokers in the United States. Dottie leads an organization of 3,800 real estate professionals and 675 employees in more than 60 offices. Its a candid and insightful conversation, and of course, fun and energetic.
We spoke right after our live weekly radio show “Eye on Real Estate” on WOR710 that Dottie hosts on Saturdays from 10am to noon along with her team of experts (including moi).
Check out the podcast.
Last month NAR told us that this month would see another period of robust sales activity as buyers sought to beat the expiration of the first time buyers and existing hoimewoners tax credit on April 30th.
NAR was right about the jump in existing home sales this month.
Still, no real trend is apparent here.
The federal government provided a stimulus to buy homes to help jump start housing and the economy. Pure market forces didn’t deliver the buyers to the closing table this month on their own. What I love about sales stats over housing price stats is sales trends tend to lead price trends. So its a bit weird to say that prices are stabilizing when a key driver of demand was the tax credit – that fueled surge in sales which helped stabilize prices. Remove the stimulus and prices fall.
Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”
When sales drop over the next few months, it would be reasonable to expect sales prices to fall too as the artificial stimulus leaves the economy.
Here are this month’s metrics: