Existing Home Sales Report: September 2008

As reported by CNNMoney.com: Existing home sales jump, prices sink.

"Sales of existing homes rose in September, according to the latest reading on the battered housing market by an industry trade group released Friday.

The National Association of Realtors reported that sales by homeowners jumped 5% in September to an annual pace of 5.18 million, up from the August reading of 4.91 million.

September sales were up 1.4% from a year earlier. Economists surveyed by Briefing.com expected the report to show existing home sales rose to an annual pace of 4.95 million.

But prices still continued to fall. The median price of all homes sold during the month fell to $191,600, down 9% from $210,500 a year ago. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier."

More existing home sales analysis as reported by Bloomberg: - U.S. Economy: Home Resales Rose More Than Forecast in September

"Economists said sales figures for this month and next will be critical in determining whether sales have reached a bottom as predicted by the Realtors' group. Federal Reserve Chairman Ben S. Bernanke earlier this month said even households with 'good credit' were finding it tough to get mortgages.

'This may be a temporary bump as we clear out these foreclosed properties,' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. 'As the meltdown really hits these figures in late October and November, that's when we could see some retracement.'

Resales were forecast to rise to a 4.95 million annual rate from a 4.91 million pace in August, according to the median estimate of 66 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.11 million."

Foreclosure type and "Distressed Sales" comprised a large percentage of the sales:

"Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent and signaling that investors are not a primary reason for the jump, said Lawrence Yun, the group's chief economist.

'In terms of sales, I think we have bottomed out,' Yun said in a press conference. 'The first step to housing-market stabilization is rising home sales. Hopefully, this trend can continue.'

The number of previously owned unsold homes on the market at the end of September represented 9.9 months' worth at the current sales pace, the fewest since February and down from 10.6 months' at the end of the prior month.

Inventories need to continue dropping in order to stabilize prices, and that will take more time, Yun also said. In the past, the Realtors' group has said a five to six month's supply represents a stable market."

Housing prices continue to fall:

"The median price of an existing home dropped from a year ago to $191,600, the lowest since April 2004. Falling home prices make it harder to refinance mortgages, pushing up foreclosures in the third quarter to the highest since record-keeping began in 2005, according to Realtytrac.com.

Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.

Today's report showed resales of single-family homes climbed 6.2 percent to an annual rate of 4.62 million. Sales of condos and co-ops were unchanged at a 560,000 rate.

Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent."

Housing market still searching for the bottom:

"'The housing downswing is really not exactly even nearing a bottom at this point,' David Seiders, chief economist at the National Association of Homebuilders said Oct. 17 in an interview with Bloomberg Television. 'The core problem in the economy is still housing, and house prices are decimating the financial markets.'

Construction companies continue to struggle. Pulte Homes Inc., the third-largest U.S. builder, this week reported a net loss of $280.4 million for the third quarter, more than double what analysts had projected.

'A bottom in the housing market may not come for some time,' Chief Executive Officer Richard Dugas said on a conference call yesterday."

It may have been lost in this latest release of the existing home sales numbers but, we believe it is important to note that inventory numbers have been subsiding quietly over the past year and now the trend suggests that perhaps inventory numbers are beginning to level:

Inventory levels were flat for years (during the bubble), but started increasing at the end of 2005.

Inventory levels increased sharply in 2006 and 2007, but have only increased slightly in 2008. In fact inventory for August and September 2008 are slightly below the levels of last year. This might indicate that inventory levels are close to the peak for this cycle (and have peaked for 2008), however there is probably a substantial shadow inventory - homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. - (CalculatedRISK)

Again, simple supply and demand. As goes the inventory so does ultimately the pricing. Too much inventory spells disaster for housing prices. Tight supplies ultimately creates upward pressures on pricing. Many economist believe that housing needs to find a solid footing before the rest of this economic mess can be effectively cleaned up. We're not economists but we do agree.