Despite NAR’s Optimism Housing Data Not Encouraging

Sales of existing homes in September were less robust than the optimistic report provided by the National Association of Realtors, and foreclosure rates have remained essentially unchanged from …

Sales of existing homes in September were less robust than the optimistic report provided by the National Association of Realtors, and foreclosure rates have remained essentially unchanged from recent months. While NAR’s chief economist sees the situation improving, he has a record of being overly optimistic at times. See the following article from The Street for more on this.

There was a big rebound in existing-home sales in September, according to the National Association of Realtors.

“Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months,” the NAR said.

The number of sales of foreclosed properties in September was 29%, near the level around 30% seen for the past several months. The current data is at a rate around 1.5 million foreclosed and distressed-home sales per year.

A series of surveys by the Housing Predictor has found that as many as 25 million foreclosures may occur in this housing crisis. Since this estimate is based on interviews with people living in the current environment, the estimate will be too high if the economy improves and unemployment declines.

Nonetheless, it seems certain that millions of foreclosures are yet to come. According to a Bloomberg report, Amherst Securities projects another 7 million foreclosures will occur. Whatever the exact number, it will provide significant downward pressure on prices and could add at least another one to two years to inventory.

Jim Cramer has projected that increased buying will burn through foreclosure inventory. This can only happen if there is a robust recovery, with increasing employment. In my opinion, a significant increase in home buying seems unlikely in the next twelve months, as lingering unemployment problems are almost certain.

September sales volumes were up from August only after a seasonal adjustment, “correcting” for factors which suppressed home sales in September from the peak summer season. Prices were also down year over year, continuing a three-year pattern.

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Lawrence Yun, the NAR’s chief economist, stated, “Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet.”

In addition, he said. “We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy.”

Yun said that there is positive momentum in the housing market. “Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home.”

Yun does not have a record of being too pessimistic. He stated in October, 2007 (here), “Home prices continue to trend up in the Northeast and in the condo sector. In other areas not dependent on jumbo loans, such as much of the Midwest, prices are rising,” he said in October 2007.

One year later, prices were down 10.2% for condos, down 7.7% in the Northeast and down 2.5% in the Midwest.

Again in October, 2008 Yun said, “More markets are seeing year-over-year gains. The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island.”

One year later, prices were down 15% in the West, down 7% in the Northeast and down 1% in the Midwest.

The NAR data can be evaluated by looking at some graphs. The first graph shows the NAR reported median prices each month for the last three calendar years. The only message from this graph is that prices have fallen year to year and have shown the same seasonal pattern, even after seasonal adjustment.

This year, the price action is stronger in September than for 2008 and 2007; the median price did not fall as steeply. Other than that, there is not much good news here for price stability.

There is better news regarding sales volume. The following graph shows sales volume by month for the same three calendar years. Some of the positive slope for 2009 comes from the extreme low sales level of January and some is probably due to the first-time home buyers’ tax credit.


However promising the graph above may look, the cumulative sales volumes for 2009 are almost identical to 2008, as shown in the following graph. When viewed from this perspective, it is seen that the first-time home buyers’ tax credit has not had a sufficient impact to make the total sales for 2009 significantly greater than for 2008.

There is nothing in this data to offer encouragement to homebuilders. There may be better news for some geographic regions this week when the Case-Shiller data comes out for existing-home sales through August. That data is segregated into 20 major housing markets.

On the basis of national averages though, it still does not seem like a good time to be investing in home builders, such as Toll Brothers(TOL Quote), DR Horton(DHI Quote), Hovnavian(HOV Quote), Pulte Homes(PHM Quote), KB Home (KBH Quote) and Lennar(LEN Quote).

This article has been republished from The Street. You can also view this article at
The Street, an investment news and analysis site.


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