Click for a larger image. Thanks to Calculated Risk for the chart.
1.) Over the last three years, despite the whipsaws created by the approaching tax credit expiration and subsequent expiration -- the median and average pace of sales appears to be in the 5 million/year range (I'm eyeballing the chart to make a point). This is despite the worst housing market in about 50 years.
2.) The current sales pace is more or less equal to the sales pace from the early 2000s.
3.) In the mid 1990s, the average/median sales pace was about 1 million homes/year less, coming in about 4 million. I doubt this is the level that sales are moving towards. If they were going to move to this level, they already would have done so.
Here's the point: to my eyes, existing home sales have hit their primary pace for this expansion.
5 comments:
It's also worth noting that the housing purchase credits were a complete waste of money. They created temporary spikes in sales which were followed by an inevitable crash. Had we left well enough alone, we'd have likely seen things level off at the lower level and stay there.
Eventually supply and demand will get back into balance and prices will climb up again, but probably not at the rates we saw in the 90's and thank god for that,
Let me give a different perspective: In the end, people use money to buy homes. Except as people are willing to spend more years of income to buy a home, home prices must eventually track potential home-buyer income. If that is doing poorly, so will house prices. If people want to spend less years of their income for homes, eventually prices will come down, even if they must wait for estate sales.
There are a lot of different levels of home ownership in different countries, and iirc you showed that we are about typical. There appears to have been a loss of the notion that thrift and caution are ethical stances, leading people into difficulties.
If you wanted to see Presidential leadership on helping the issue, there are two sensible messages:
#1) Your home is not an investment, it is the place where you live. It might happen that at some point in old age you will move out or leave it as an estate, but it's not something that makes money for you while you are alive, the way real investments do.
#2 "Underwater" is nonsense. You bought a house. You still have a house. Unless you are selling, the price of your house is meaningless.
Besides, most people buy new cars on the installment plan, with interest. The moment you turned the key to leave the lot, your car lost a fair piece of its value, and your car was underwater. Did you feel you had to dump the car? Of course not, and the same is true for houses.
@George There are several problems with having a home that's underwater that go beyond the selling price.
First of all, it makes refinancing impossible, which means that you can't take advantage of lower interest rates and free up disposable income.
Second, because you can't refinance, you can't take advantage of equity in the home to make improvements which could increase the value of the home. So not only does it lose value as it goes underwater, it hinders your ability to add value to it.
Third, it locks people into living in a particular area. Even if they wanted to sell, they couldn't. It means people are unable to pursue job opportunities elsewhere, etc.
Finally, if you lose your job, and become unable to pay, you have no way out. You can't sell the house, and so you wind up in foreclosure and potentially bankruptcy.
A house is nothing like a car other than them both being things you buy with credit.
Let me entirely differ with your analysis.
First, refinancing to save money is rarely an opportunity historically. Interest rates can also rise, something that is going to start happening sooner or later. A more serious issue -- which is an issue on which you would be right -- is that short-term adjustable rate etc mortgages and falling home problems can have catastrophic consequences, namely you cannot satisfy the terms of the mortgage because house prices fell. The same effect can be obtained by sacrificing other expenses and making early payments on principal.
Second, borrowing money to make home improvements is an example of the irrational behavior Presidential messaging should condemn, because it means you pay the builder, and then you pay the bank a second time. If you couldn't afford to pay the builder, you could afford even less to also pay the interest. (We may consider 'heloc' loans going to televisions, boats, extra motor vehicles et tedious cetera as an example of the second Presidential message): Your house is not an investment vehicle; do not treat it as one.
Interesting arguments all. I know nothing about the housing market, but I'm a fair hand at technical analysis of charts. It works with charts of all kinds, stocks, commodities, indices, and even housing sales.
What you have here is a classic 'head and shoulders' formation. They are not foolproof and nothing is a lock, but it actually points to a downside target of around 1 million per year.
This is doubtless unthinkable to most people, and especially so to those who know the market. They will rightly point out that an economic collapse of major proportions would be necessary for this formation to come to fruition.
Commodity and stock index charts have different formations and technical price targets, but such a collapse is not out of the question--although, of course, even technical analysts disagree over that conclusion.
This EHS chart, however, is hinting that the pessimists may be onto something. We'll see what unfolds in the coming few years. Hopefully, we'll dodge the bullet, as some say.
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