Record Number Of New Homes For Sale
The new home sales numbers are out. “Sales of new homes in the United States fell 5% to a seasonally adjusted annual rate of 1.233 million in January, the lowest in a year, the Commerce Department said Monday. The number of new homes on the market increased 2.5% to a record 528,000, representing a 5.2-months supply at the January sales pace. The months’ supply is the largest in nine years.”
“The growth in inventories and the slower pace of price appreciation are factors suggesting the booming housing market of the past four years is losing steam as mortgage rates rise and affordability falls. Homebuilders remain relatively upbeat about market conditions, however. Nearly 20% of the homes on the market at the end of January had not been started in construction. Another 58% are under construction.”
“Sales fell in three of the four regions, with the West, climbing 11.3% to buck the trend. Sales fell 10.3% in the South, 10.8% in the Midwest and 14.9% in the Northeast.”
” “The biggest decline was a 14.9 percent decrease in sales in the Northeast, which followed an even bigger 23 percent plunge in sales in December. Some economists have expressed concerns that once home sales start to slow, the big price increases of recent years could turn into sharp declines in a similar pattern to how the speculative bubble in stocks burst in 2000.”
Major business news reporting services (AP, Market Watch etc.) quickly pushed aside the disappointing new home sales news. Only yesterday they were hyping about the home sales numbers and how they are poised to lift the stocks.
For some insight into U.S. economy and the housing market, I would recommend readers to the following 1-hour audio interview:
2nd Hour Guest Expert
Marc Faber, Ph.D. “Dr. Doom”
Topic: The Road to Ruin
http://www.netcastdaily.com/fsnewshour.htm
Home ownership is at just under 70%. Its pretty safe to say most people in the news media are home owners. Its only natural they would want to downplay anything negative in housing.
Bingo.
A friend of mine was the editor of a major tech magazine during the dot-com boom. Because of the risk of bias, his reporters were forbidden to write stories about companies in which they owned stock. However, there was no rule precluding them from owning tech stocks generally — nor could there be such a rule if the magazine wanted to keep its reporters. Hence the bias was inevitably in favor of “up, up, up.”
“The government cautions that its housing data are extremely volatile and subject to large sampling and other statistical errors. It can take up to six months for a new trend in sales to emerge.”
I would say that if this month’s figures are lower than all of 2005, that is fairly convincing evidence that a new trend has emerged. Waiting for six months to take action could be lethal to your household net worth.
“Homebuilders remain relatively upbeat about market conditions, however. Nearly 20% of the homes on the market at the end of January had not been started in construction. Another 58% are under construction.”
Like I’ve said elsewhere on this blog, builders don’t care. They bought their land years ago and could sell the houses right now for years ago prices and still make a hefty profit. They’re just charging what the idiot in the market are willing to pay. As things continue to unwind, the builders will just keep throwing in incentives and dropping prices to keep things moving for them. If this undercuts the speculators, they don’t care. They will continue to do this until they can’t make a profit at all. Then they will retreat until the next boom time.
Wash, rinse, repeat. Some of them will go bankrupt for a second time to offload that pesky pension or other debt and come right back.
Great Point! I think a lot of companies abuse bankruptcy law. Remember when kmart recently went uder, only to emerge and buy sears, come on now.
MCI was significantly advantaged by BK. They had to pay $350,000,000 to leave BK due to the unfair advantage they enjoyed from their mis-deeds.
This clearly points to the benefits of a quick correction. Get it over with and move on quickly!
It’ll be nice in the distant future when people learn to ask for higher salaries instead of some iffy pension payment 30 years down the road. We don’t need more regulations we just need more sceptical employees.
Not all the land they purchased was at cheap prices. They bought out many farmers here in Bakersfield for $100,000+ per acre on property that 2 years earlier was “worth” $5,000 per acre.
I’m hearing the same thing in Tulare County too. Developers are grabbing up farmland for $110K+ an acre. Putting in the required improvements just to be able to build isn’t exactly cheap either.
Don’t forget that many of these builders play subsidiary games: The “builder” isn’t the one actually holding the bag, but a LLC created for the specific purpose of the particular complex. If it sells for a profit, the builder wins and takes all the money out of the LLC. If things are down, the LLC is the part left holding the bag.
This isolation of downside risk potentially allows a builder to be in a situation where half succeed (showing a profit) and half fail (bankrupt), and the builder makes out profitable.
Sounds just like Donald Trump…LLC. Amazing how so many people consider him a genius, a great real estate developer, etc. What a sleazo. If you really follow the news on him, it seems like a property of his is in bankruptcy a couple times a year. I know he was also personally bankrupt some time ago as well. Seems like he figured out the formula of how to abuse the great system we have … he profits on the good deals, but lets other people take the fall on the ones that lose. Now he is a T.V. star. What a great country!
In my opinion, this is the big problem with using free-market theory to describe/predict/rationalize the behavior of most Western markets.
All corporations / LLC’s are essentially government-sponsored entities because their liability for the financial and non-financial damage they cause is limited. This government sponsorship allows corporations to simply externalize costs (i.e., get the public to pay for their costs) instead of actually reducing them and thereby degrades the checks & balances inherent in a truly free market.
And this is the government we elected. Keep voting on obscure, nefarious push button issues like abortion and we’ll keep getting it stuck in your ass by corporate interests.
Builders go broke too. While that land is sitting undeveloped, it’s not producing income, they still have to make payments on it and they had to file permit fees to develop that land. Do you know who Robert Campbell is?
My analysis of homebuilders like WLS shows they can only make money when prices are rising so they can sell land at a profit as they lose money on the actual construction…
People out on the west coast are sitting in their cars right now hearing this on the news. It will be interesting to see how this is spinning positively over on CL once they get to their offices.
The northeast took a big dump two months in a row. This is wonderful.
1.last JAN was not as builder friendly weatherwise
(2006 warmest in100 years )
2. inventory from feb 15th till now will be amazing
I was driving around the Anaheim & Fullerton area this week & the sheer number of Open House signs are absolutely astounding. It seems that there is one or more of those signs at every street corner. I decided to stop by one about 3:00 PM and was greeted by a RE agent as if I was the only person she has seen all day… Perhaps I was!
I saw a guy in fancy jeans and sunglasses, spinning his own open house sign. I looked like he just walked out of a night club. I think there is a severe shortage of sign (not house) flippers.
signspinners.bubble.blog.com
yeah, you probably were!
here in annarbor the realtors have taken to bringing books and laptops with them. Had a nice discussion the other day with a realtor who was getting good chunks of the kiterunner read. We chatted for a good 20 minutes til I left (nobody came in to bother us). I always sign into their guestbooks, lately there are 3 or 4 names in there with mine. Then I get a phonecall or an email too, even though I specify I have an agent already. Last week I signed in midway thru the OH timeframe at a place and saw my name from the week before at another property right above where I was about to sign in. just put an upward arrow in her little book.
we had a nice chat about the nasty palmetto bugs she experienced in the new home her friends just bought in FL.
and later I spoke with a couple different realtors about vermiculite–be careful about this stuff if you’re in the NE! The realtors won’t tell you a damn thing about it and make you seem nuts if you care, but in many many older houses in NE and midwest there is an asbestos-laden insulation material that had been mined by WR Grace in Libby Montana and gave the whole town absestos-related diseases. the EPA says to leave it alone, but studies indicate that even casual contact with it can be very very bad. It looks like rusty popcorn. I’m quite sure that if it wouldn’t cost billions to get out of every house with it in the attic the EPA would recommend removing it (they were on the verge of it before they realized how deep that shit would be). Instead they say don’t touch it, don’t store stuff in an attic with it, just act like there’s a monster in your attic and let it be. This stuff is decidely *not* like those asbestos tiles in the basement or the asbestos wrap on the old furnace…it is very easily airborne and persistent. Realtors who know about it poo-poo it, and most don’t have a clue. Sellers will *not* tell you about it even if they know it’s there, but a decent inspector will leave the attic, for his own health!, the second he sees some.
cheers!
i work in a chemistry lab and vermiculite is what all the big chemical manufacturers ship chemical bottles in. it’s good packing material and supposedly would soak up any possible leaks. Granted it might be different than what was mined years ago. My general opinion is that anything fine enough can be airborne and get into your lungs and not be able to get out. I work with silica gel that is worse for you than airborne asbestos, but it’s not the same silica gel that comes in your bottle of multivitamins. It all depends on particle size.
The supply side continues to increase rapidly, while the demand side falls significantly. Classic economic scenario.
David
Bubble Meter Blog
Why does this not surprise me? A condo in my building was put up for sale last week. I kept an eye on the open house this weekend and noticed they got a good amount of traffic. I look at these families and wonder how on earth they are even considering a $550k condo. My husband and I calculated that in order to buy a unit in our building it would cost $27k more per year than it does to rent a similar (actually larger) unit.
I will say though that this condo was a total remodel and that it is priced $2k under the last fixer unit that sold last fall. But still, it seems people are still looking to buy in the San Jose/Bay Area.
There’s a saying I’ve heard several times in the past that economic booms and busts generally start on the east coast and roll west.
I’m an east coast transplant to L.A. and for the last 2 years, I’ve also spent half my time in Boston and half in L.A. When I heard last year that the bubble started bursting first in Boston but wasn’t bursting in L.A. yet, I was not surprised. People in New England are a generally more practical and more negative than Californians. My sense of the bubble in Boston was that while it was inflating, people felt a bit guilty about it and at some level realized it was silly. California, meanwhile, is the land of milk and honey, and there is a mindset here that the sky is the limit.
Exactly!
The particular brand of “California - land of milk and honey and the sky is the limit” attitude around here, in the San Francisco Bay Area, is evident in what I have called the “financially self-delusional” behavior of our denizens.
Lunarpark describes it above very well ($27k more annually to buy than rent comparable properties?!).
Being originally from New England myself, it’s just fascinating to see. Irresponsibility reigns…
Land of MILFs and Honeys …. get it right!!!
The NE sales decline shouldn’t surprise anyone as this is the region with the most out of whack prices. Yes even the big paying job blue states can’t support 1950’s 3 bedroom pieces of garbage for $600k. I expect inventory to continue to outstrip sales and prices to continue slipping. How much and for how long is anyone’s guess but I wouldn’t be surprised to see nominal price declines of 5-7% y-o-y for the next several years.
Richard, I hope you are right. I just read in the NYTimes that builders are offering new *studios* in Manhattan for $600,000. Now, that certainly is not the norm for studios. Most NYC studios are in fact offered in the $300k range, plus or minus. That’ll get you 500 square feet if you are lucky. The suburbs, as you point out, are just as inane.
I agree the suburbs are inane, but you probably meant to say insane.
So sales are still up from a year ago, as are prices. Sales are down over the last few months. Inventory is also up.
Nothing really surprising for readers of this blog.
What about existing home sales?
existing home sales numbers are out tom. at 10 am
resales can’t offer free garages so they’ll get clobbered, especially in outlying areas where they go head to head w builders
These ‘falling sales’ percentages are interesting. They seems to be running within regions at about the suspected percentage of speculator purchasing. If so, could be looking at 12-18 month inventories by summer.
What would the realtors say by then???
“NOW IS THE TIME TO BUY!”
Also factor in that all these realtors, lenders, and builders will also have to sell their “investments” to pay the bills. Eventually, they too will have to downsize.
What is up with the West’s numbers? I looked at the full report on the Commerce Dept. web site and it show Jan ‘06 New Home sales in the West as 375,000. This is higher that all but two months in 2005 (July at 436K and Oct at 410K).
Is it because of home builder incentives in places like Sacramento and San Diego? West region folks, what’s you take on this?
Quick! Load up on cosmetic stocks before the market closes… NAR will need a bunch of lipstick for this pig and drive these stock thru the roof for a few short days!
omg, that had me in tears laughing…
thanks!
Read about Orange County Home Prices.
Took them long enough!!!
Newport Beach 92661 sales up 300% median price up 1490%. Situation normal, remain calm.
They only sold 4 houses…. must have been pricey!!!
What is up with the West’s numbers? I looked at the full report on the Commerce Dept. web site and it show Jan ‘06 New Home sales in the West as 375,000. This is higher that all but two months in 2005 (July at 436K and Oct at 410K).
Is it because of home builder incentives in places like Sacramento and San Diego? West region folks, what’s you take on this?
Like I have said in the past, people in the west will go down with the ship. They do not know when to stop, afterall they can’t afford those BMW and MBZ just on their wages, so for them to stop is like asking a drug addict not to steal for his next fix, eventhough cops are all over the place.
It is just a matter of time, but when that time comes, expect declines not just slowing.
Nick
That and the fact of exploding inventory in the low to middle value homes. I personally believe that the Feb./March price numbers will show that sales are being skewed to the less-than-median side, with 500K+ homes just dying on the vine.
“Nearly 20% of the homes on the market at the end of January had not been started in construction. Another 58% are under construction.”
Okay so that’s 22%, or over 116,000 new homes that are completed and sitting empty waiting for a buyer.
Judging from the MBAA purchase index, new and existing sales hung in there in January:
Oct: 470
Nov: 477
Dec.: 448
Jan: 447
However, the first half of February has averaged 400, promising that a much uglier number (down almost 10% from Dec-Jan) will be reported in next month’s releases.
Russ,
Would you care to expound on this?
The MBAA is reported weekly,
http://www.idorfman.com/Charts/MBAIndex.jpg
and I think it is more time sensitive to what’s going on. There are two indexes, the purchase and the refi, and they are seasonally adjusted. The purchase index cruised along at nearly 500, demonstrating a very high level of activity as the market topped out throughout 2005. It really only broke below 450 in Dec, and Jan was about the same. Finally, at long last, it has fallen to the 400 level in the last few weeks, suggesting a new leg down in activity is underway. This will show up in next month’s new and existing sales release as a lower number.
Interesting chart… thanks Russ.
I guess SD is “different” (as usual) because their existing numbers were already ugly in January:
http://sandicor.com/statistics/stats2006/01statistics.html
(If your browser can deal with .pdf files, click on Monthly Sales…)
GS,
Do you realize if you compare those numbers to 2004, it looks even uglier. As you know, it started slowing here in 2004. Based on the records I’ve been keeping (Sandicor), January 2006 has the highest number of new listings of any month on record (I have #s from 2001). It also has the fewest sales — of any month — on record since 2001.
And this is only January…
ca renter,
Are your sandicor records publicly available anywhere? Thanks if you have any convenient way you are willing to share them…
GS
I don’t think they’re public, but I have them if you need ‘em. I don’t mind responding to requests.
Jim,
We should go for a beer some time, as you have suggested
the NE market should be doing good because it’s been so warm lately and there hasn’t been much snow, except for the blizzard the other week.