Home Sales & True Inventory: No Good News

by: Bill Conerly August 25, 2008    

Bill Conerly

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The headline sounds like good news--"Home Sales Up"--but there is no joy in Mudville.
ExistHomes
The "increase" was really a blip (in technical jargon). In reality, sales are still low.

The "inventory" was said to have risen, but remember that the number of existing (not new) homes for sale is not the inventory. The true inventory is the stock of vacant housing units. There are over six million housing units vacant but not on the market as for rent or for sale. In truth, we have many, many more housing units "in inventory" than we need. Solution?  Ultimately, we need more families to absorb the housing units. What happens while we wait for population growth? Price will continue to fall.

Sorry, we're out of happy news today.

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This article has 5 comments:

  •  
    Aug 25 06:05 PM
    Excellent point in bringing up the number of vacant housing units not 'for sale or rent'. The number of vacant housing units, coupled with a credit crunch and rising mortgage rates, will only serve to prolong the downturn in the housing market. In addition to falling prices, wage growth and an improvement in housing affordability will lead to the eventual rebound in housing sales.
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  •  
    Aug 26 11:07 AM
    These things are cyclic. There's no reason to be a "chicken little" here.
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  •  
    Aug 26 11:27 AM
    It is also important to also consider that the pace of the price decline is also related to the pace of income growth and mortgage credit availability. These factors, along with your focus on inventory levels and the need to "absorb" the housing stock, are possibly even more important to consider.

    As I think about the current situation, the realities of reaching a bottom sound even more dire considering that unemployment is probably going to rise, wages appear stagnant on a real basis and credit is increasingly hard to come by. It appears to me that the "institutional end game" is to just try to slow the pace of the housing price decline to allow for these important factors - jobs and wage growth and a renewal of credit extension - to minimize the ultimate depth of the decline.

    As I write these words, I fear that the current focus on "Is this the bottom?" is really missing these weakening pillars of a hoped for managed decline. It isn't just about the number of house sales or even simply the level of inventories at this point - the discussion should be about the real factors that could help lessen the blow and how those factors are actually still in a weakening process.

    For these reasons, I do not believe we are reaching the end of the housing price decline soon. Some areas of the country, yes we are reaching this point, but for other major markets, we are still in decline and the pain will likely be felt in an increasing way. That is the way leverage works, unfortunately, with increasing marginal pain along the path of decline. That is true for consumers and for banks.
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  •  
    Aug 26 12:08 PM
    www.census.gov/hhes/ww...

    this is the web address for the second quarter estimates (2008) for vacant housing units. The number of vacant units for rent or sale is more than 6 million, a significant increase from the same quarter last year, but not huge, and subject to error in sampling. This number is a more than one year supply of existing home sales, but remember that it includes rental units.

    The number of units vacant for other reasons (excluding seasonal units) is more than 7 million. What these other reasons are is not stated.

    I draw no conclusions from this data, except that we got overbuilt, which is well known.
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  •  
    Aug 26 06:41 PM
    The overall numbers are masking the reality of the truely local nature of real estate - in 05 and 06 the broad upside was overstated, and now in 08 the downside is overstated

    The volume of sales of distressed assets in exurbs is creating a bifurcated market -lots junk far way and less quality closer in . Junk is getting hammered while quality has declined somewhat. However, more junk has sold lately so overall medians have declined -- probably more than the price of quality has declined . No one with a good asset is selling unless they have to.

    In a number of better markets, or those that fell first, inventory is down to 4-7 months sales - or equilibrium or better. Multiple offers on better properties ( the few on sale amid the dross) are not unheard of in these markets. In contrast, the far flung exurbs, areas of high volume 05-07production, and later cycle declining markets are seeing bigger inventory overhang.

    All this is reestablishing a bigger value spread between quality and junk - real estate fundamentals come back in fashion



    This set of circumstances is forcing prices
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