Wednesday, October 24, 2007

No Gentle Landing For Housing Market

Just getting worse:

The National Association of Realtors reported yesterday that sales of previously occupied homes in September dropped 19% from the same month a year ago to a seasonally adjusted annual rate of 5.04 million units. The trade group blamed disruptions in the mortgage market.

Meanwhile, The Wall Street Journal's quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling and overdue loan payments are piling up.

Some forecasters now warn that home prices are unlikely to start rising in most of the country before 2009 or 2010. A year ago, many home builders and lenders still thought that the housing boom -- which more than doubled prices in some areas during the first half of this decade -- would end with a gentle landing. Now those hopes are dead.

Uncle Ben is going to lower the Fed rate by at least 25 basis points next week, but so far, the lower interest rates have yet to staunch the bleeding in the real estate market.

How low can Uncle Ben go?

And how low can the real estate market go?

In order for housing to get back to the normal historical ratio between housing prices and rents, housing prices have to fall 50%.

Dunno if prices will fall anywhere near 50%, but rising inventories and increasing foreclosures sure won't help settle the market.

UPDATE: New homes sales were reported to be up 4.8% in September from the previous month. The margin of error for this data was 10.3%.

Year-over-year, new home sales were down 23.3% in September 2007 from September 2006. The margin of error for this data was 8%.

Barry at The Big Picture writes:

First, we see the headline number. This month, September 2007 sales of new one-family houses were up 4.8%, at annual rate of 770,000 (SA).

Second, we look at the year-over-year data, which in this case was 23.3% below the September 2006 estimate of 1,004,000.

Third, we look at margin of error. The monthly gain of 4.8% was within the "estimated average relative standard errors" of ±10.3%. This means the data point was "statistically insignificant."

The year over year number however, at 23.3% -- ±8.0% -- is greater than the margin of error, and therefore is statistically significant.

Note: These aren't my opinions; these are simple mathematical facts that the Commerce Dept. notes in the footnotes of its release. Based on this data, we know for sure that year-over-year sales decreased; What we can tell about month to month sales is that they may -- or may not have -- increased (we just don't know).

And remember that new homes sales data is not adjusted for cancellations. Barry lists cancellation rates for the major homebuilders thusly:

Firm . . . Cancellation rate for Quarter
Centex (CTX) 35%
MDC Holdings (MDC) 57%
KB Homes (KBH), 50%
Lennar Homes (LEN) 32%
D.R. Horton (DHI) 48%
Beazer Homes (BZH) 68%
NVR (27%)

But much of the press reported that the new homes sales data shows that housing may be rebounding a bit.

Uh, huh.

Sure it is.

Wanna buy some homebuilders stock?

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