Housing Bubble Watch: New and Existing Home Sales Tumble
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The National Association of Realtors issued its monthly report on sales of
existing houses on Wednesday, August 23 and one would think they were reviewing
the DVD of "Chicken Little."
The networks didn't necessarily lead with the story but it was up there
in coverage with the general tone being "Hi, ho, the housing boom is dead."
Whoops, wrong movie.
On Thursday the U.S. Census Bureau in conjunction with the U.S. Department
of Housing and Urban Development released their monthly summary of new house
sales for July and the figures were pretty much in line with the NAR report.
As if anyone should be surprised at the news!
The nation has been waiting breathlessly for the housing bubble
to burst and with interest rates up a point or more over the last year and home
prices continuing to climb everyone had to know it was just a matter of time
before housing became so unaffordable that something had to give.
There is a self-fulfilling prophecy at work here as well. As books, newspapers,
and television commentators have nattered on about "the bubble"
potential buyers have, according to anecdotal data, pulled back a bit, waiting
to see if prices decline as sales cool. Unscientific reports also indicate that
anxious sellers are dropping prices and scrambling to make their homes more
"saleable" while builders are offering concessions on new homes
ranging from parking a free car or pick-up in the three car garage to quality
upgrades to covering closing costs. It is difficult to measure this kind of
information, but here is the latest hard data.
According to the NAR report, existing home sales including
single-family houses, townhouses, condos, and co-ops were down 4.1 percent on
a seasonally adjusted basis to an annual rate of 6.33 million units in July
from the revised rate in June of 6.60 million. The monthly rate fell 11.2 percent
from the July, 2005 sales rate of 7.13 million.
This followed the NAR report issued on August 15 that reported that sales for
the 2nd quarter of 2006 (April-June) were down 7.0 percent from a record-setting
level of 7.19 million sales in the second quarter of 2005.
Therefore, the media funeral dirges that followed the release of the July figures
seemed just a little overdone. David Lereah, NAR's chief economist, said
that higher interest rates were responsible for lower sales but that the softening
of prices is actually good for the housing market because it is encouraging
buyers to re-enter the fray. "Now sellers in many areas of the country
are pricing to reflect current market realities. As a result, there could be
some lift to home sales, but it'll likely take some months for price appreciation
to rise."
Still, prices were up a bit. The national median price for
an existing home regardless of type was $230,000 last month, up 0.9 percent
from one year earlier although the price of condominiums and co-ops, while up
2.8 percent to a seasonally adjusted annual rate of 818,000 units from 796,000
in June were still 10.5 percent lower than the 914,000 sold in July of last
year. Condo prices were also down 1 percent from a year ago; the median price
was $225,000.
It was housing inventories that seemed to set off alarm bells
in the media. At the end of July there were 3.86 million existing homes on the
market. This is a 7.1 month supply at the current absorption
rate. In June the inventory was at 6.1 months. Single-family home sales were
down 5.0 percent from June and 11.4 percent below sales one year ago. Still
the existing single family home price of $231,200 was 1.5 percent higher than
one year ago.
On a regional basis, percentage sales declines and median prices were as follows:
| Region |
Sales Volume
June/July |
Sales Volume
July 2005/2006 |
Median
Sales Price |
Price Change
July/July |
| South |
-1.2% |
-7.0% |
$182,000 |
+3.2% |
| Northeast |
-5.3% |
-12.6% |
$276,000 |
-2.1% |
| Midwest |
-5.9% |
10.1% |
$178,000 |
-0.6% |
| West |
-6.4% |
-18.0% |
$348,000 |
-0.6% |
Statistics on sales of new single family houses as released by Census/HUD were
similar. In July never-before occupied dwellings sold at a seasonally adjusted
rate of 1,072,000 units, a decline of 4.2 percent from the revised June rate
of 1,120,000. This is, however, 21.6 percent fewer homes than the July 2005
estimate of 1,367,000.
The median sales price of new houses sold in July was $230,000 compared to
$233,800 last month and $229,200 in July 2005 (averages were $293,500, $289,300
and an identical $289,300 in July, 2005.) At the end of last month there were
568,000 new homes for sale in the United States, a supply of 6.5 months at the
current sales rate. Still, the report showed that the median time a house sold
in July had been on the market was 3.8 months. This was actually a lower market
figure than seen during most of the year and only slightly longer to the figure
of 3.7 months one year ago.
On a regional basis it was the Midwest that showed the greatest decline in
new home sales - a drop of 21.3 percent since June and 35.4 percent since
July of 2005. Sales in the Northeast which took a big hit earlier in the year
and are down nearly 43 percent since July 2005, were down only 1.8 percent June/July
as builders have apparently made adjustments to the new reality.
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