Friday, July 25, 2008

We're Nowhere Near A Bottom in Housing

From CNN:

Sales of existing homes in June slowed more than expected and hit their lowest level in 10 years, according to an industry trade group report released on Thursday.

The National Association of Realtors reported that sales by homeowners dipped in June to an annual pace of 4.86 million, down 2.6% from a pace of 4.99 million in May.

That's the lowest rate on record since the first quarter of 1998, when existing home sales fell to an annual pace of 4.83 million, according to Walter Molony, spokesman for NAR.

The existing home sales rate - including single-family, town homes, condominiums and co-ops - is down 15.5% from the 5.75 million units sold in June 2007.


But with inventory still on the rise, home prices are falling further. The number of homes available for sale at the end of June rose 0.2% to 4.49 million, which represented an 11.1-month supply of inventory at the current sales pace, up from a 10.8-month supply in May.

Meanwhile, the median price of a home sold in June fell to $215,100, down 6.1% from $229,000 a year earlier.

So -- prices are dropping, sales are dropping and inventory is rising. This is not a good combination.

And adding to that inventory is the rising tide of foreclosures:

foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

``Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. ``That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

About 25 million U.S. homeowners risk owing more than the value of the their homes, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. That would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

As if that wasn't enough, home vacancy rates are near records:

The percentage of vacant homes available for sale in the U.S. continues to hover at record levels.

Census Bureau figures show 2.8 percent of homes, excluding rental properties, were empty and on the market from April through June. The vacancy rate hit a record high of 2.9 percent in the first quarter of 2008. It was 2.6 percent a year ago.

However, there was some good news on today's new home sales report:

Sales of new homes in the U.S. dropped less than forecast last month as builders offered incentives to reduce a glut of unsold properties.

Purchases decreased 0.6 percent to a 530,000 pace from 533,000 in May, a reading higher than previously estimated, the Commerce Department said today in Washington. A separate report showed orders for durable goods unexpectedly rose in June.

The number of properties on the market dropped by the most in four decades, today's report showed, indicating builders are making some headway in clearing out inventories.

``We may have not touched bottom yet in the housing market, but we're clearly not in any freefall,'' Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report.

At least the inventory of new homes is dropping. But the existing home market is much bigger and is therefore more important than the new home sales market. And the problems there the same as we've had for some time: high existing inventory which is increased by rising foreclosures and the high vacancy rates. These combinations are just not good and don't bode well for the future.