March 24, 2006

New Home Prices Down YOY, Record Inventory

The new home sales numbers are out. “Sales of new one-family houses in February 2006 were at a seasonally adjusted annual rate of 1,080,000, according to estimates released today by the U.S. Census Bureau. This is 10.5 percent below the revised January rate of 1,207,000 and is 13.4 percent below the February 2005 estimate of 1,247,000.”

“The median sales price of new houses sold in February 2006 was $230,400;. The seasonally adjusted estimate of new houses for sale at the end of February was 548,000. This represents a supply of 6.3 months at the current sales rate.”

“Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation’s once-booming housing market is cooling off.”

“The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes. It was the second straight monthly decline and was much bigger than the small 2 percent dip that Wall Street was expecting.”

“The number of new homes on the market increased 4.4% to a record 548,000, representing a 6.3 months supply. The months’ supply is the largest in a decade. Sales in January were revised lower to a 1.207 million unit pace from 1.233 million previously estimated.”

“The median sales price fell by 2.9% year-over-year to $230,400 in February. The average sales price rose 2.6% to $296,700. The sharp drop in home sales may be confirmation to some economists that the higher mortgage rates may bring an abrupt end to what they see as a bubble in housing, with prices higher than justified by fundamentals.”

National Median Prices:

Oct. 05..$243,900

Nov. 05..$237,300

Dec. 05..$236,800

Jan. 06..$234,200

Feb. 06..$230,400

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Comment by Ben Jones
2006-03-24 07:24:03

The inventory looks like a new record. With the existing home inventory just barely below record levels, it is fair to say there have never been as many homes available. Wasn’t it only months ago we were told there was a shortage?

Comment by LIWaiting
2006-03-24 07:35:50

Yeah, but last I checked their not building anymore land!!!

This is getting fun.

Comment by GetStucco
2006-03-24 07:53:08

TOL and friends sold off on the news, but then got a nice DCB thing going…

Comment by OCobserver
2006-03-24 08:06:38

Here is another fact to ponder

Consumer demand for home mortgage loan applications fell last week to the lowest level this year despite a marked drop in interest rates, as industry trade group said on Wednesday.

Mortgage application number is usually the leading indicator of RE transaction. The lower the # of appliation, the lower the sale volume. The # of applications is falling again, indicating that we will see a declining sale volume next month … again.

Comment by ajh
2006-03-25 01:32:16

If March’s raw sales volume is even close to declining compared to February, it’s going to bust the bubble right there and then due to the seasonal adjustment factors.

Because of the normal ’spring bounce’, March’s seasonal adjustment factor is about 40% lower than January’s and February’s, so even a modest rise in raw sales will show up as an ugly headline fall.

Unless, of course, the NAR suddenly decide to focus on the unadjusted data :).

Comment by David
2006-03-24 07:25:08

More proof of the bubble. The NAR must be sweating.

Bubble Meter Blog

Comment by John in VA
2006-03-24 07:32:31 has a big banner headline on this:

Comment by Craven Moorehead
2006-03-24 07:36:45

“Housing Sales Cool”. What a softball. When is a mainstream media outlet going to have the balls to pronounce “Real Estate Death Plunge of Doom Continues”??

Now the question is, what will Learah say? Does NAR issue a press release in response to these numbers?

Let’s play Real Estate Death Plunge of Doom Madlibs.

“The housing market is still on a __________ for a ________. Buyers held back in February because of an unusually _______ as well as _______. We will see a return to _______ in March as the housing market continues to __________”.

Comment by CharlesM
2006-03-24 09:08:35

HAHA!! This one made my morning hot chocolate come out my nose. Excellent.

Comment by OCMax
2006-03-24 09:56:50

Madlibs make more sense than realtor doublespeak. See below:

“The housing market is still on a TIGER for a CENTURY. Buyers held back in February because of an unusually RED SEA as well as BROCCOLI. We will see a return to SALTINESS in March as the housing market continues to DRINK”.

That makes way more sense to me than anything David Lereah ever said.

Comment by Surffroggy
2006-03-24 13:56:02

HAHAHAha, it does make more sense! madlibs always come out sounding that way. Good one.

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Comment by SB BubbleBeliever
2006-03-24 07:33:04

“Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation’s once-booming housing market is cooling off.”

Oh Oh.

I think it’s numbers like this that prodded the Santa Barbara Realtor’s Association to stop providing stats to the SB News Press a couple of months ago.

By the by, watching Bloomberg TV this a.m. and they are talking about the dire numbers coming out of the housing sector now… Given the noticable uptick in National Media reporting on the housing crisis- there is no doubt that reporters are logging on to Ben’s blog to get the pulse of what’s really going down.

Comment by SB BubbleBeliever
2006-03-24 07:56:44

I’m still watching BLOOMBERG TV, and they just had another 5 minute segment discussing the 180 degree turn in HOUSING NUMBERS… and was asking a Deutch Bank executive his take on the goings on.

“Soft landing” was part of his vocab… but he did say “no sign of an outright MELTDOWN in housing”.

Hmmmm… sign of the times? They start to acknowledge the possibility, then a month or two down the road it comes true? (i.e. a couple of months ago: “signs of a slowdown… expect only 5 to 8% gains on housing prices for 2006″.

Comment by GetStucco
2006-03-24 08:06:08

Crashes can only be seen in retrospect…

Comment by fishtaco25
2006-03-24 08:43:49

After this news, piled on top of all the other national and local reports out there, I cannot imagine more buyers coming to the table. This is not the type of thing that results in a busy spring for sellers. Things can only get worse and go down from here.

Comment by GetStucco
2006-03-24 08:53:59

Affordable housing policies are currently in the planning stage to address the problem of not enough demand to which you have alluded.

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Comment by accroyer
2006-03-24 07:34:39

The bubble is here, theres no room for negotiation or discussion. The facts are staring us in the face, just wait a little longer and people will sale out of desparation. I am glad to see this happening, and the greedy will get what they deserve.

Comment by Upstater
2006-03-24 17:07:41

the greedy will get what they deserve

The truly smart but still greedy got out of this a while ago. Now the stupid greedy are left.

Comment by destinsm
2006-03-24 07:39:38

“The slowdown in sales was putting pressure on prices. The median price of a new home sold last month dropped to $230,400, down by 1.6 percent from January and off 2.9 percent from February 2005. The median is the mid-point where half the homes sold for more and half for less.”

AKA YOY decline in prices

Comment by John in VA
2006-03-24 08:15:55

Not including builder incentives…

Comment by destinsm
2006-03-24 07:41:19
On the bubble? Heed these dos and don’ts
Thursday March 23, 6:00 am ET
Dana Dratch

Comment by GetStucco
2006-03-24 07:54:23

“DON’T panic
If you can afford your payments and you like your house, a bubble can’t really hurt you.”


Comment by OCMax
2006-03-24 10:20:44

“You won’t be homeless or starve to death — but you’ll be reminded that you’re a greedy chump every time you walk by a mirror!”

Comment by Robin
2006-03-24 19:37:37


Comment by chilidoggg
2006-03-25 02:29:14

do i know you?

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Comment by cereal
2006-03-24 08:47:10

oh this is good. that article does absolutely nothing to calm jittery nerves. it actually would creep me out if i was an fb. the ONLY thing they can muster up to help people relax is that little spin about 2 - 3% annual appreciation in the long run garbage. and that seems like so much spewage in the context of the bigger message.

i think the article was written by a bear. it’s more effective than even the best of the best on this board.

Comment by annata
2006-03-24 11:12:17

You’re right; this article does nothing to calm fears about a housing bubble. The answer to every question in the section “DO stay informed” unambiguously points to a bubble crash.

Comment by Housing Bear
2006-03-24 07:43:57

Now the question is, what will Learah say? Does NAR issue a press release in response to these numbers?

He will say, “there won’t be a better time than now to buy.”

Comment by grim
2006-03-24 07:45:13

“The good news is that there is a wide selection available to buyers immediately.”


Comment by LARenter
2006-03-24 08:00:16

I saw David Learah on CNBC yesterday, I was actually surprised to see him down play the posiitive report on existing home sales. The NAR is always going to sugar coat this thing but they also run the risk of looking like “Baghdad Bob”. Of course to many on this board including me that’s what they have been sounding like for the past two years. You will never see these guys come out and say “boy this thing is gettin ready to tank”. They will continue to carefully manage the message until this thing bottoms. It’s my opinion the NAR probably has a better handle on the degree this thing is going to tank. I would love to be a fly on the wall and hear these guys talk when the cameras and mics are turned off.

Comment by SB BubbleBeliever
2006-03-24 08:39:12

Well said LA!!

Comment by JWM in SD
2006-03-24 08:54:36

I think you’re most probably right about them knowing more about the negative aspects than even we do. Watch over the next couple of months as they begin to slowly change their story on the bubble. In order for the realtors to make money, they have to have transactions, which means that they will begin to encourage sellers to competitively price their homes…i.e. reduce their asking prices.

Comment by AZ_BubblePopper
2006-03-24 13:21:03

They are already doing just that - encouraging seller to take down their asking prices.

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Comment by OCobserver
2006-03-24 07:44:20

This is just the 1st week of the spring. The RE data will become bleaker at each passing month.

People are not going to drop their house price by 20% in 1 day/week. This will be a steady decline & when we look back 12 months from now, price will drop another 10%-15%. That is huge.

Comment by lainvestorgirl
2006-03-24 08:07:48

As impatient as I am, as everyone here knows I am, I would be satisfied with 10-15 percent declines per year. I could totally live with that.

Comment by GetStucco
2006-03-24 08:10:39

How are you planning to profit on your investments when prices fall over the next six or more years?

Comment by lainvestorgirl
2006-03-24 08:55:55

I just need the property to cash flow, I don’t care if the value declines. But since it seems that we are witnessing actual price declines, I think I will hold off for 2-3 more years, at least, as my $$ grows.

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Comment by watcher
2006-03-24 10:52:58

Huh? In that case buy dividend-paying stocks and don’t worry if their value drops and drops. At least they will still provide you cash flow.

Comment by lainvestorgirl
2006-03-24 14:07:59

There are many other benefits to RE: principal paydown, tax advantages, hedge against inflation, chance for upside, etc., that most other investments can’t replicate. Also, this is my business, I’m used to it. With stocks, I have no control, and all your profits are there in black and white for the tax man to see.

Comment by Patriotic Bear
2006-03-24 14:30:11

Hey boys and girls in this decline rents may drop and there goes the cash flow. Stock dividends will drop. As an advisor in early 1974, I saw a foolish man buy Continental Edison at $25. to get the high dividend. He agreed with my bearish stock market view for that year. The guy said he “didn’t care about the price falling because he got cash flow”. The stock fell to $5. and then cut its dividend. Holders of GM last year know the story . Buy the stock for the dividend, the stock declines, and then cuts its dividend. We are in the start of a violent economic storm. Wealth is about to be destroyed at an umprecedented rate. The risk is that all investment classes and consumables (including rent and dividends) will drop in price. Wait for the storm too pass then buy among the wreckage.

Comment by To BA Or Not To BA
2006-03-24 15:43:05

Well said. Cash flow does not protect from rapid loss of principal. Investment 101.

Comment by Upstater
2006-03-25 08:08:17

But if huge numbers are losing their homes in defaults wouldn’t that result in an increase in rental values? They have to live somewhere. That’s the variable, I don’t think has been considered thoroughly here. If defaults start occurring in overwhelming terms, can the banks throw everyone out? They are going to have to change the way they deal with defaulters and take pennies on the dollar. Another thing…20,000 march in LA protesting changing immigration laws. I really think this is the elephant in the room. Newsweek said we had hundreds of thousand of illegals in the country. Throw them out and then what happens when housing is already limping…. Fast forward five years…If we do have crumbling homes in disrepair on every corner (homes the banks repo’d) is that where those with money really want to live….where will those people end up? Hmmmm, maybe my home should come off the market. I can still grow my own food and have a cow or 2 here if necessary. LOL

Comment by Spykeeboi
2006-03-24 09:02:12

Exactly! Perhaps people will start to reclassify their housing outlays under “expenses” and not “investments.” Sheesh, everyone’s got to be an effin capitalist…

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Comment by Housing Bear
2006-03-24 07:45:43

In my opinion, we need fear in the market for prices to drop. We may see some fear, soon.

Comment by SB BubbleBeliever
2006-03-24 08:03:51

There will be fear, but I also believe that the STORY on the quiet air leaking from the bubble will soon be quantified in Median Sales Prices… and that will be proof for the fear to commence.

For example, in Santa Barbara- I am seeing sales prices at 200-300K less than the original asking prices but this data has not made it to mainstream local media (radio, newspaper, etc) YET.

Therefore, people on the street still think our market is “Stable”.

Only the pro’s are really studying the numbers and I can only assume there are alot of “oh $h!t” thoughts going on in the heads of the real estate business talking heads.

Comment by annata
2006-03-24 11:17:50

I think it will take a little longer than that. There will need to be some heartbreaking stories in the news before people will personally relate to price declines and become afraid. Just like people needed some time to figure out that a 1% interest rate hike can become a 30%+ rise in mortgage payment, people will need some time to figure out that a 5% drop in property values can become a 100% loss in equity. Mathematically, it’s obvious, but fear is not based on mathematics.

Comment by SB BubbleBeliever
2006-03-24 12:15:33

Good points Annata!

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Comment by To BA Or Not To BA
2006-03-24 15:46:00

Good point. Another investment 101. Leverage can magnify gains AND losses.

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Comment by nnvmtgbrkr
2006-03-24 07:45:51

Now watch the big builders stick it to the market. You think you’ve seen the best of those “weekend specials”, just wait. Expect news pouring in of those lame attempts of lawsuits by homeowners saying they’re were jilted by their developer after he dropped prices drastically on later phases. Happens every time.

Just recently our area builders began listing their product on MLS. This hasn’t happened here in this millinium. I think the Fat Lady is standing at the mic ready to do her thing.

Comment by GetStucco
2006-03-24 07:56:36

Do you think the builders will soon start having Sunday open houses for their excess inventory? How about hiring auctioneers to sell them by open open-outcry auction? “I hear six hundred thousand. Anyone for six-hundred-ten? Going, going, gone…”

Comment by bacon
2006-03-24 08:21:54

more like “let’s start the bidding at 600k, can i get 600k, anyone? anyone? how about 550k, anyone for 550k? 500k? 450k? anyone for 450k? c’mon folks, they’re not making anymore land, this is a 3 bd/2 bth w/ white picket fence, can i get 400k?” and so on…

Comment by GetStucco
2006-03-24 08:56:04

You are right — they will have to sell by Dutch auction, as in the wake of the tulip mania…

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Comment by Arwen U.
2006-03-24 11:17:50

Here in Northern VA, Pulte had a “group open house” last Sunday for all its excess inventory. With balloons, food, the works.

Comment by GetStucco
2006-03-24 07:45:59

“This is 10.5 percent below the revised January rate of 1,207,000 and is 13.4 percent below the February 2005 estimate of 1,247,000.”

This is easily explained by the unusually warm January weather this year.


Comment by Bubble Butt
2006-03-24 07:49:07

You gotta wonder what they are saying now on the flipper blogs. Gotta be some serious worrying going on there.

Comment by GetStucco
2006-03-24 07:57:26

Not much — too catatonic to post anymore…

Comment by freeloading roommate
2006-03-24 07:53:06

Any ideas on why we have such a dramatic difference between existing and new home sales?

Conspiracy theories preffered, thanks.

Comment by re_2_au
2006-03-24 07:59:21

Especially with the incentives and deals the HBs have been offering of late…

Comment by freeloading roommate
2006-03-24 08:08:50

I’m wondering if there’s a difference in the way the two figures are “seasonally adjusted”. If that somehow the existing home sales figure over compensates more for the normally prevailing cold in January (which didn’t happen).

If you look at the existing home report yesterday (prices down, inventory up) and the new home sales report today, everything is consistently negative except a single “seasonally adjusted” figure.

The evidence leads me to mistrust that “seasonal adjustment” in this case.

Comment by Ben Jones
2006-03-24 08:04:22

Check out yestersdays posts and threads. Even the NAR said that sales were down double digits in the bubble areas and up big in Indiana, New Mexico and Texas. A sales boom in Houston won’t help Phoenix flippers, where sales were down 28%.

Comment by giantaxe
2006-03-24 08:24:26

So how did Indiana, New Mexico and Texas “rescue” the existing home sale figures but not the new home sale? I realize there is a time lag on the existing sale figures, but this just doesn’t pan out to me.

Comment by dcgirl
2006-03-24 08:57:14

I think that difference is that the existing sales is a lagging indicator (measured when settlements close not when contract is ratified) whereas new home sales are contracts ratified in that month. So existing homes sales really measured activity in January not February but new home sales reflected February activity. This portends good things (or bad depending on your POV) for existing home sales next month. Mortgage application numbers also indicate the same as activity was much lower in February as compared to January.

Comment by Austin Martin
2006-03-24 08:59:34

The biggest difference is how the sales are recorded. February new home sales are contracts signed in February. Existing home sales for February usually went into contract in January, and closed in February. That would explain the difference since January was unseasonably warm, and February was cold. This would mean that March’s existing home sales should mirror the February new home sales..

Comment by mchan
2006-03-24 11:11:17

New homes is a leading indicator, they count contracts signed. Existing homes counts homes closed, it’s a lagging indicator from 1-2 months ago.

Comment by deflation guy
2006-03-24 11:46:40

Home builders cut prices faster than homeowners because there is plenty of room to lower prices and still make money. It is expensive to hold onto inventory so they try to move it quickly. I think homeowners take longer to accept the reality of a falling market. Also, they are more prone to hold onto their property and weather the cycle rather than sell at a loss.

Comment by Ben Jones
2006-03-24 07:54:55

From the update:

‘The number of new homes on the market increased 4.4% to a record 548,000, representing a 6.3 months supply. The months’ supply is the largest in a decade. Sales in January were revised lower to a 1.207 million unit pace from 1.233 million previously estimated.’

‘The median sales price fell by 2.9% year-over-year to $230,400 in February. The average sales price rose 2.6% to $296,700. The sharp drop in home sales may be confirmation to some economists that the higher mortgage rates may bring an abrupt end to what they see as a bubble in housing, with prices higher than justified by fundamentals.’

Comment by GetStucco
2006-03-24 08:07:41

“The sharp drop in home sales may be confirmation to some economists that the higher mortgage rates may bring an abrupt end to what they see as a bubble in housing, with prices higher than justified by fundamentals.”

Count me in…

Comment by cereal
2006-03-24 08:54:31

to me a “decade” means 10 years, or somewhere around 1996 when things were in the tank

Comment by Robin
2006-03-24 19:46:41

Isn’t a six-month average historically “normal”?
I expect a fifteen-to 18-month average before this ever gets cleared out in the next two to three years. Group thoughts?

Comment by destinsm
2006-03-24 07:56:15

I guess the market decided at 10:15 that lower sales at lower prices is positive for the HB’s…..????

Comment by GetStucco
2006-03-24 07:58:52

DCB or PPT? How can one ever tell?

Comment by destinsm
2006-03-24 08:02:48


Comment by GetStucco
2006-03-24 08:04:36

Dead Cat Bounce– Wall Street’s standard explanation for why a stock that should be crashing mysteriously bounces right back up in the face of gloomy fundamentals.

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Comment by arroyogrande
2006-03-24 09:01:58

Even a dead cat will bounce if dropped from a high enough level…

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Comment by Shalimar
2006-03-24 09:13:33

All of the HBs have said they are buying back shares. I think a bunch of them did this morning to stem the decline.

By the way, I watch the site for Fort Walton Beach inventory. Today it went over 12,000. At the beginning of the year it was just under 10,000. A year ago it was at 3000. I know this includes SFHs, condos, lots, and mobile homes, but I think it is telling on the shape of the local market. It’s a good thing BRAC is bringing in so many people to absorb the inventory.

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Comment by destinsm
2006-03-24 09:36:24

12,000 seems high… what are you including in that figure?

Navarre, FWB, Mary Esther, Crestview, Destin, Santa Rosa Beach, etc… just curious what cities you are including in your inventory #.

Comment by John in VA
2006-03-24 09:49:41

All of the HBs have said they are buying back shares. I think a bunch of them did this morning to stem the decline.

Neat trick - Execs use the company’s cash to buy back shares and prop up price while they furiously sell their own.

Comment by Shalimar
2006-03-24 10:02:11

This is the US Census region as best as I can tell, so yes it includes all of those areas. Use a map search at and keep selecting FWB.

By the way, I have been spending a lot of time at Mexico Beach lately (near Tyndall AFB). There are 4 story condos being built all across HWY 98 from the Gulf shore. I estimate about 5000 units, none complete yet. This town has 1 good restaurant (Toucans, try their Prime Rib if you ever go there). Half of the beach houses are empty this spring break. The permanent population is 1,033 and most of these are trailer homes.

Comment by destinsm
2006-03-24 10:08:48

Don’t need to go that far to see the crazyness… just look at some newer neighborhoods in Destin and Santa Rosa Beach and about 50% of the homes are for sale..


Destin - Calusa Bay
SRB - Driftwood Est… good thing they are starting a new phase in there with half the current inventory already for sale :) crazy

Comment by Shalimar
2006-03-24 10:29:09

Speaking of the FWB area did you notice the condo median price from the FL NAR at $219,000 (98 sold), down from $465,000 (172 sold) last year? Last month it was $200,000. If you go to and look only at destin for condos (includes townhomes), only 88 (of 1,515 listed) condos/townhomes are selling for under $225,000. This tells me that virtually no condos are selling in Destin.

Comment by destinsm
2006-03-24 10:31:27


Comment by GetStucco
2006-03-24 08:00:49

Oh, I forgot — it is short covering!

Comment by GetStucco
2006-03-24 08:03:06

Corporate share buybacks?

Comment by re_2_au
2006-03-24 08:18:12

Now the HBs are in the green for the day…
Somebody smell a rat?

Comment by Spykeeboi
2006-03-24 09:14:40

The HBs have inside contacts with NAR, so they–and their major investors–always know the news before it is released. The stock market is no different than Vegas–the odds are in the house’s favor. I would even suspect that the HBs and NAR collude on the numbers, perhaps deciding in advance where and when to take the hits. That’s no conspiracy theory, that’s just American business.

BTW, ever see Glengarry GlenRoss? This whole drama’s been done before. And with much better actors…

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Comment by chilidoggg
2006-03-25 02:38:33

updated 2006:

bubblehead: you see my watch? it’s worth more than your house!

flipper: that watch is worth 20 bucks!

bubblehead: you’re underwater on your house 100 grand!

Comment by GetStucco
2006-03-24 08:19:53

Not to want to fuel any conspiracy theories or anything, but the bounce you see after the HB numbers were released drove up the S&P500 and the NASDAQ as well…

Comment by GetStucco
2006-03-24 08:21:17

Correction: “New home sales numbers” (which are, more-or-less, HB numbers anyway…)

Comment by fred hooper
2006-03-24 08:26:43

Odd isn’t it? HB’s were up 4-5% yesterday on slight month over month increase in existing home sales. Today, they were down 2% after the new home sales came out, now their back up???

The question is, will the Fed blink?

Apparently, the market thinks so, and the bets are on the Fed putting the stops on future rate increases. This may drag out for quite some time, and the bubble will continue to grow. Can it get any worse? You betcha..

Comment by GetStucco
2006-03-24 08:31:15

The markets are wrong about BB, IMO. While CNBC pumps HB stocks, BB and Fed insiders pump the underlying strength of the economy. This can only be construed as cover for a continuation of the measured series of FF rate increases. To say the economy is strong then stop tightening on the first hint of weakness would be tantamount to going to a tatoo parlor and having “Helicopter Ben” emblazoned on his chest.

Comment by fred hooper
2006-03-24 08:41:36

You’re right! Greenspan didn’t pump the economy until after the .com bubble popped. However, as many posters have noted here, it won’t take much in the way of a downturn in home prices and employment levels to cause widespread impact on consumer spending and the overall economy. By the time the Fed figures it out, it will be too late.

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Comment by Upstater
2006-03-25 09:25:13

So are you saying the feds aren’t as motivated to lie to the masses as they are to foreign investors which we wouldn’t want to start backing away from us?

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Comment by Robert Cote
2006-03-24 08:40:59

The HBs were up yesterday because the NAR “said” the annualized seasonally adjusted home sales rate was up 5.2%. Actual sales in Feb 2006 were LOWER than Feb 2005. Seasonally Adjusted is as Seasonally Adjusted does Forrest.

Comment by John in VA
2006-03-24 09:54:08

Decreasing rates won’t prevent a bubble burst. They were only the catalyst to begin with. The bubble was driven primarily by psychology and loose lending standards, both of which increased as home prices went up. Once that turns, no Fed action will be able to prevent the drop.

Comment by nnvmtgbrkr
2006-03-24 10:10:54

Total agreement on this. Market psychology is King. Once fear sets in, it’s hard to shake. Hey, it’s been hard to break up this “greed cycle” even though rates are up at least 1.5% from their lows. Once people get what is going on, no amount of rate cuts will save the housing market. The Fed will have to try to find another bubble to expand. In fact, there is data supporting this. Not long ago I read some info on how historically rate decreases do not save bubbles, at least not short term. This thing will have to run its cycle.

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Comment by gordo nyc
2006-03-24 07:56:41

This report is not necessarily good news for bubble advocates wishing to see steep declines in overall RE prices. Consider tge fact that EXISTING home sales JUMPED 5.2% in Feb06. I think a portion of the existing home sales increase came at the expense of NEW home sales, which is the drop you see here. I suggest that some buyers are taking advantage of the existing home surplus and not buying new ones.

As true advocates we want both new and existing inventories to continue to increase. If home builders see their sales are dropping; they will reduce the number of new homes… and that will reduce overall inventories. So while I am encouraged to observe a 10.2% drop in new home sales as a positive sign the bubble is here; it’s effect is counter product to our goals of accelerating the decline… and we don’t want that. gordo

Comment by GetStucco
2006-03-24 08:00:04

I respectively disagree. Inventory is inventory, and housing is a commodity, once you have hit record levels of oversupply…

Comment by destinsm
2006-03-24 08:01:45

Did you look into the Feb existing home sales numbers??? In all previously “white-hot” markets, sales were down…

Somehow the NAR magically pulled out a high positive number with all the east and west coasts showing down sales… guess they sold a bunch of houses in Texas…

Comment by GetStucco
2006-03-24 08:05:14

They have an interesting way of computing averages over at the NAR…

Comment by nnvmtgbrkr
2006-03-24 08:39:46

I agree. In all the important areas existing home sales were down.

Comment by nnvmtgbrkr
2006-03-24 08:49:36

This is why one has to be careful when interpreting data. Most have a complete inability to decipher data, and the “street” knows this. The knowledge of this emboldens them to manipulate data to serve their means.

“GetStucco” made the comments on conspiracy theories……oh, I’m a big believer.

(Comments wont nest below this level)
Comment by Northern VA
2006-03-24 08:12:16

The big builders have a deep pipeline of new developments that are going to come online over the next couple of years. These developments can’t be turned off just because things are starting to slow down. There are contracts booked way in advance for land, materials, etc. and a lot of sunk costs. The builders will eventually slow down production, but it will take a while.

This isn’t even to mention the shareprice slaughtering that will occur when builders are no longer growing revenue and earnings. Right now builders say growth in the industry will flatten out but that we expect to take market share because we execute so wonderfully, blah blah blah. Once it is widely known the industry will contract for a prolonged period its going to be way too late for builders to do anything but try and rid themselves from a mountain of debt and inventory.

Comment by GetStucco
2006-03-24 08:27:25

The insiders are fine with your scenario. They will be fully cashed out by the time the share price reflects the new fundamentals, part of which will be the effect of successive waves of insider selling…

Comment by Mike_in_FL
2006-03-24 14:07:43

existing home inventories ARE continuing to increase. The 3.03 million units of EH on the market is just shy of an 18-year high. A few thousand more units and I believe we’ll set a new record for EH just like we already have in new homes.

Comment by accroyer
2006-03-24 07:58:46

I all fairness sales are down in March because of March Madness,in April because of Easter,May because of Mother’s day, June because of Father’s day, July because of the 4th, August becaus it is to hot, September because school is starting back, October because of Holloween, November because of Thanksgiving , and December because of Christmas.

Comment by SB BubbleBeliever
2006-03-24 08:08:01

That’s right Accroyer,

No more ROCKS to hide under :)

Comment by AmazedRenter
2006-03-24 08:00:22

Gotta love the drop in the West -> ~-30%!

Not to discount these numbers: let’s keep in mind the huge range wrt confidence interval. However, a jump from 4.8 to 5.3 to 6.3 month of inventory is an extremely unlikely aberration (

Comment by CharlesM
2006-03-24 09:23:40

The great thing is that the months’ supply of inventory is rising at nearly one month… per month! The light at the end of the tunnel for Mr. Specuvest R. Flopper is moving away from him even faster than time is marching on… LOL.

Comment by Darth Toll
2006-03-24 08:02:21

We all talk about sellers getting some fear, but what I want to know is at what point will the lenders and others who hold this paper (MBS, etc.) start getting a little fear?!? This will be the real beginning of the bloodbath, IMHO. The idiots that lend 800K to a FICA 500 for a 3/2 ranch fixer in some of the more bubbly markets need to start feeling some pain (foreclosures).


Of course, in a more rational moment I know they can’t stop. And this is why the housing bust is the beggining of the end…

Comment by peterbob
2006-03-24 10:30:11

My prediction is that history will show that the true driver of this property bubble is not low interest rates or the creative financing or all the nouveau flippers, but the fools who bought the mortgages from the lenders in the first place and who are left holding the bag.
They just didn’t understand the risk in all the funny money loans.

Comment by Polestar
2006-03-24 12:19:32

The lenders were the irresponsible parent giving their kid the keys to the car and then telling him not to drive it. If someone does not have the money to pay a loan, you don’t give them the money. End of story.

Many of the buyers (flippers) were clearly greedy, but their greed fed off the lenders’ greed, when the lenders didn’t want the party to end in 2003 as it should have. Flippers couldn’t have done it without them.

Comment by Housing Wizard
2006-03-24 08:07:05

Seeing this excess supply in the new home sector is one of the greatest indicators of the market turning . New home prices dropping ,( when building materials went up ).

Comment by stanleyjohnson
2006-03-24 08:09:15

according to GMA’s diane sawyer last month had highest sales in two years. click on below link, left side GMA video about real estate tricks of trade.

Comment by John in VA
2006-03-24 08:22:55

Here in No VA, they’re still building like crazy. Half finished developments everywhere, new subdivisions with the sewers and streets just going in, and Loudoun County just OK’d the development of thousands more homes.

Comment by freeloading roommate
2006-03-24 08:24:41

Likewise in SE Va. So many homes and condos coming on line in the Fall.

Comment by Housing Bear
2006-03-24 08:24:26

CNBC “pumps” housing all day, every day. I think CNBC’s behaviour is tantamount to Joe Kennedy’s shoe shine boy story.

Time to short the HBs!

Comment by fred hooper
2006-03-24 08:30:09

Did that yesterday..

Comment by desidude
2006-03-24 08:27:53

Some revisit of history lesson would do wonders to every one here.

Real Estate News Summary, Part 138, November-December 1992
Upscale Los Angeles real estate broker Fred Sands has a sober message: Cut
asking prices for homes drastically or forget about a sale
. “If you don’t
need to sell, put it away for the next 3 years.” Residential prices still
are dropping. Buyers are scarce, and they will only buy bargains.In many
cases realistic prices have dropped by 25% from the final spike levels of
the boom.
[Associated Press]

New home sales fell 10.3% in October, but economists said that figure will
be revised upward next month. October’s new-home sales were up 13.3%
compared with the a year earlier. For the first 10 months of this year
sales were 20.6% above 1991. The median price of a new home rose 5% in
October to $125,000, the highest since $127,000 in December 1990.
[Investor's Business Daily]
New home sales fell 10.3% in October, the biggest drop in 7 months.
Analysts said the estimates by Commerce and Housing and Urban Development
have become so unreliable that they expect the plunge to be revised
upward. Estimates have been adjusted upward, often substantially, every
month since Sept. 1991. [San Francisco Chronicle]
Academics, securities analysts and even Realtors agree that home price
drops are a lot higher than reported by the California Association of
. CAR reports indicate the median price for a previously occupied
single-family California home declined 6.4%–to $197,540–in Q3 ‘92 from a
peak of $211,000 in May 1991. UC Berkeley’s Center for Real Estate
estimates California prices have fallen 10% to 25%
. CAR says the median
house price in the Bay Area in October was $249,380–down 8% from an all-
time high of $271,000 in July 1989. [San Francisco Chronicle]

Comment by SB BubbleBeliever
2006-03-24 08:53:41


These are great to read! I hope that the NATIONAL MEDIA reporters are lurking here today… Lots of great morsels to remind us all that just because R.E. has soared for all of our short-term memories- it doesnt mean that we won’t see these corrections and changes to the cycle in the very near future.

In fact, most of us here on the blog believe that the correction is going to be much grander than any historical reference of the past.

Comment by bubble-x
2006-03-24 08:29:22

It looks like U.S. inventory exploded while homes sales in the west got body slammed. We just posted graphs for this. Check it out if you want:

Comment by crispy&cole
2006-03-24 08:34:25

This inventory will continue to grow as they keep building. Where I live KB, Pulte, Lennar, etc.. are building like they is demand for the next 20 years.

Comment by GetStucco
2006-03-24 08:59:26

Pretty soon there will be twenty-years worth of new home supply!

Comment by GetStucco
2006-03-24 08:35:16

Nice graph — shows the inventory correction loud and clear.

Typo noted: “northeast” on your legend

Comment by Salinasron
2006-03-24 08:31:16

With the prospect of foreclosures and bankruptcy I thought that it might be interesting to look up how the new bankruptcy laws might effect some homeowners taking this route.

State Exemptions Aren’t Available to Recent State Residents
Under the old bankruptcy law, the personal property debtors were allowed to keep in Chapter 7 bankruptcy was determined by the laws of the state where they lived (as long as they lived there for at least three months). Under the new law, you must live in a state for at least two years prior to filing in order to use that state’s exemption laws. Otherwise, you must use the exemptions available in the state where you used to live. Similar rules apply to homestead exemptions, which determine how much equity in a home you can keep when filing for Chapter 7 bankruptcy. However, to use your new state’s homestead exemption, you must live there for at least 40 months.
Because exemption amounts vary widely from state to state, these new residency requirements could make a big difference in the amount of property you get to hold on to. For example, if you recently moved from California to Nevada and you have a fairly valuable car, you might want to wait to file for Chapter 7: Once you’ve been in Nevada for two years, you can claim its $15,000 exemption for motor vehicles. If you have to use California’s exemptions, you can keep only $2,300 worth of equity…………..

While this may sound benevolent, a much closer look at the practical effect of this provision reveals the crafty peeling of the debtor’s rights. The 180 day requirement is to provide the credit counseling agency the opportunity to work out payment plans with creditors. However, during this same period of time the creditor is not restrained from collection efforts. For example, Margaret is a homeowner in Jacksonville, Florida and is six months behind on her mortgage. As a rule, credit counseling agencies only work with credit card companies and have little or no training with dealing with mortgage companies.
After receiving foreclosure papers, Margaret goes to see her attorney to file for bankruptcy and is told that she must first seek credit counseling before filing for bankruptcy protection. Meanwhile, the foreclosure proceeds on schedule and a sale date is set 120 days later. However, Margaret still has not completed her 180 day requirement. What will happen to Margaret’s home? That’s right! The home will be sold and she cannot stop the sale by filing bankruptcy.

Just a peek into what’s down the pike.

Comment by desidude
2006-03-24 08:32:53

pardon me, there is one more lesson pending!
Read it and let me know if there is anything that is new that is happening now.

Real Estate News Summary, Part 5v Wed, Nov 14 1990

In some areas where housing prices have fallen sharply, bankruptcy judges
are cutting debtors’ mortgage obligations down to the actual market value
of the house. In some places such as Denver, where housing prices have
plummetted as much as 40%
, these so-called cramdowns have substantially
reduced the amount the debtor owed. So far, cramdowns aren’t that
prevalent in California, but the trend is changing. [SF Chronicle]

The median single family house sold in the Bay Area in Q3 dropped 3.1%
to $261,610 from the year-earlier price of $269,970, the California
Association of Realtors reported. The number of sales fell 21.5% from
Q3 1989
. [SF Chronicle]
The California housing market, which accounts for roughly 15% of new and
existing home sales nationwide, is in a deep swoon. If the decline keeps
up, it could be a harbinger of a widespread and severe national recession.
Latest figures from the California Association of Realtors show that sales
of existing single-family homes plummetted 27% in September “It is a
bust,” says Timothy R. Eller, president and chief operating officer of
Centex Real Estate Corp. that builds in California. “I think the shakeout
is just starting.”
[Wall Street Journal]
An investor in Maine bought a townhouse at auction for $116,000. That was
1/3 of the listed $350,000 price at the peak of the boom in house prices
in the mid-1980’s. [New York Times]
In Southern Santa Clara County, 85 home sellers are offering cars to
anyone who signs a contract this weekend
. But the buyer has to agree to
the seller’s asking price. Even some of the real estate developers and
brokers who are sponsoring the event admit they don’t expect to sell many
homes this weekend. There are more than 700 homes for sale with the
San Jose Real Estate Board in the area from Morgan Hill to Gilroy; in
October, there were 68 sales.
[San Jose Mercury News].

Comment by OCobserver
2006-03-24 09:23:30

This cycle is virtually IDENTICAL as the previous one. The future is unfolding exactly as the past of 15 years ago. Only extreme idiots would not see this.

I am building up my cash reserve …

Comment by GetStucco
2006-03-24 08:36:32

“National Median Prices:

Oct. 05..$243,900

Nov. 05..$237,300

Dec. 05..$236,800

Jan. 06..$234,200

Feb. 06..$230,400 ”


Comment by Van Housing Blogger
2006-03-24 10:15:12

But the national median price has never fallen! This is *impossible*! The data *must* be wrong! On the other hand, . . .

Comment by equalizer
2006-03-24 08:39:47

Existing home sales down 15% in CA, while new home sales down by 29% in the west (no breakdown yet by state)!
Dont worry interest rates still around 6, er 6.5%. Great time to buy.

Comment by Chrisinpnw
2006-03-24 09:41:53

Is there anyway to get the state breakdown? I rent in Washington state & am considering north of Tucson for a buy when the big break happens. Thus, the state breakdown would be of help. Thanks in advance if anyone can find it.


Comment by PW
2006-03-24 09:30:33

in orange county resales through the MLS (which probably accounts for 90% or so of resales) as well:

2/15/06 to 3/14/06 2,145 sales
2/15/05 to 3/14/05 3,217 sales -33.3%

Comment by ChillintheOC
2006-03-24 10:18:14
On the bubble? Heed these dos and don’ts
Thursday March 23, 6:00 am ET
Dana Dratch

“One of the biggest fears with a bubble is that the homeowner will owe more than the house is actually worth. But that’s usually only a factor if you’re selling, need to tap your home equity, or have an adjustable-rate mortgage (or some funky option where you’re skipping or delaying paying the equity) and interest rates start to rise”.

The person who wrote this article has got to be a hard core bear. If I was a recent ARM borrower reading this BankRate article for the first time, I’d be sweating like a pig!

Comment by cereal
2006-03-24 11:22:17

see my post way above. i think it was a bear too. this is some creepy stuff. i’d be choking on cyanide right now if i was an fb reading that article.

it’s the kind of thing one of those patrick blogger jokesters would throw out there.

Comment by lagunabeachinvestor
2006-03-24 10:31:25

I wonder if Lerah has opened escrow on any of his planned Las Vegas condo purchases yet? Did anyone send him and email to find out? Someone from the press who reads this board should try and get that questions answered. If he says no, ask why? Are you waiting for prices to drop a lot? Lerah et. al. should start getting used to repeating after Homer Simpson….. DOE!

Comment by Melody
2006-03-24 11:08:15

Read about Outlook: Builder to get 4.1% price hikes in ‘06.

“… If new homes were introduced now at Year 2003 prices, there is no doubt that pandemonium would result in terms of market interest, but at current higher price levels, interest has waned. This phase of the current real estate cycle is now obvious. The overall foundation for new home sales and stable prices remains intact, but the period of annual double-digit housing price appreciation rates is now over. The likely scenario for Southern California’s new home market during the next several years is continued high demand and continued high price levels, but very low rates of annual new home price appreciation.”

Comment by hanknzw
2006-03-24 11:44:56

Any first time home buyer just now has to be plainly stupid and deserves to loose money!

2006-03-24 12:11:04

Those who like an Orange County history lesson, would love this one …. CLICK HERE

Comment by Bruce Dickinson
2006-03-24 12:42:12

Ha-ha. I just got a voice mail from a “realtor”. They are getting really desperate: “I talked to you 9 months ago about a rental property. I can help you buy a house.”

I didn’t recognize the name or company so it must have been somewhere that I just called to ask questions and did not even interact with the person. Holy Smoke! Are they clutching at straws?

Comment by Liashburn
2006-03-24 12:49:34

I am so glad the bubble is bursting. You should look at the faces of all those greedy people in Loudoun County,Virginia, who kept pushing those home prices to levels of insanity. Where did they think they were headed? How could you continue to price a $500,000 home at 1million? Do you think we don’t know what a million dollar home should look like? Or do you think we were just too gullable? I am so glad I did not buy in that crazy market. I can now sit back and watch everyone panic. It was insane to buy into that market, and now you want to shake your stupidity onto some other buyer. Buyers, please don’t buy now. Let the market, drop, drop, drop! Don’t panic! There’s a long way to the bottom. Let them sweat. Buy when it hits 40% or lower. Just save your money and rent.

As for TOLL Brothers, I hope when the bubble pops, it drives them to the end of the earth where they belong. For the last few years they have stolen money from prospective borrowers. I hope GOD punishes them good. Good luck TOLL and all the greedy people in Loudoun, I hope you have a hell of a fall.

Comment by Betamax
2006-03-24 12:58:50

New Home Prices Down YOY

Ding-dong, the witch is dead
Which old witch?
The Wicked Witch!
Ding-dong, the Wicked Witch is dead

Comment by ajh
2006-03-25 02:01:24

That song refers to the Wicked Witch of the West, doesn’t it :)?

Comment by need 2 leave ca
2006-03-24 18:30:57


flip flop flip flop flip flop flip flop

Comment by need 2 leave ca
2006-03-24 18:34:21

Martha - pack the kids and our clothes into the Hummer. The house we purchased last summer at $1.3M would only get us $500K today. Our mortgage payment just went from $1800 to $4600, and our loan balance is now $1.5M. That means were a $1M under (sweating). If were lucky, we can get to the border by tomorrow before the sheriff shows up to kick us out, and the bank recalling the loan. Hurry up. Let’s move.

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