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Tuesday, December 11, 2007

October 2007 Housing Statistics

Keeping track of monthly national statistics can be difficult. They are released over the course of any succeeding month. Our roundup for October is here, a bit late, but contains all the numbers that matter, collected in one place.

The Quick Summary
The story is repetitive at this point. Each month new construction is dismally low, prices fall, yet inventories remain bloated for both new and existing homes. In any market, let alone housing, this spells many months of downward pressure on prices, and production cutbacks to reach anything remotely resembling a normal supply/demand balance. One is hard pressed to find any expert analysis out there that talks about recovery before Q4 2008.

The Details
Supply Factors:
Low Production & Bloated Inventories Remain
**New Home Inventory, (PDF): The shred of good news would be that after months of repeated, drastic cutbacks in production, that new home inventories, (pending the inevitable revisions), may have declined, a small bit. The October inventory of new homes now stands at an 8.5 months' supply.

This measures in at 37% more new homes for sale than the FYE 2006 level of 6.2 months' supply.There is still a long road ahead for bringing inventory levels down, which can only mean continued low levels of production, and heavy downward pressure on prices. Maybe we look for builders/developers to continue some of the fire sale tactics seen previously.

**Permits, Starts and Completions, (PDF): showed the same pattern that has persisted for many months. Permits were 24.5% less than last year, new housing starts were 16.4% under last year, while completions were 25.2% less than a year ago.

The Wall Street Journal provides context on new construction numbers and the builders' plight with excessive inventory and low demand:
...(new) permits have tumbled to their lowest level since 1993.
Housing Intelligence echoes our own sentiment in a simple supply/demand format:
The only way for new home inventories to fall to a healthy months’ supply is for new starts to slow down dramatically while builders sell current inventories aggressively.
**Existing Home Inventories, (PDF): In October 2007, this index rose again, and shows a 10.8 months' supply of existing homes for sale. Readers need only to consider that a 6 months' supply is widely considered to be a market in equilibrium. During 2004 and 2005, the market held only a 4.5 months' supply.

That would mean an inventory decline of 80% is in order. It has been widely noted that this is a distinct disadvantage for individual sellers vis a vis, the greater financial muscle of the builders to slash prices.

Demand Factors & Prices
More Than 20% Sales Declines Despite Large Price Decreases
**New Home Sales, (PDF): Sales may, (before the revisions), have shown a rise with respect to September, 2007. Nevertheless, new home sales remain 23.5% below October, 2006. Not sure that the average person needs to know any more than that. This is territory that is all too familiar for 2007 vs. 2006 comparisons.

The Big Picture explains the nuances, and unspins the "rise in new home sales", for those interested in greater depth.

**Existing Home Sales, (PDF): Sales were down 20.7% from the same month in 2006. Paper Economy offers a detailed analysis which demonstrates that no region of the US was spared:
*Sales are down significantly in EVERY region and for BOTH single family and condo.
*Prices for single family homes declined for EVERY region.
*ALL Inventory and Months Supply show significant increases on a year-over-year basis.
Money CNN looks at new and existing homes collectively, under the headline "Home prices see biggest drop in 25 years" for Q3 2007. Some see press releases from the national trade group as overly slanted optimism, The Big Picture provides perspective as does Jonathan Miller from Matrix.

The Future?
Paper Economy examines the pending home sales index, often seen as a predictor in these words:
...showing truly stark and horrendous continuation of the historic decline to residential housing on a year-over-year basis, both nationally and in every region.
The Big Picture makes an observation, notable for the relationship between foreclosures and the year long problem of burgeoning inventories:
Here's the really bad news: The projected supply of foreclosed homes is about ~45% of existing home sales -- adding four months to the supply of existing homes.
Bloomberg reminds us that foreclosures remain around 100% higher than one year ago at present. However, many have noted that the dollar value of ARM resets, (a pretty big cause of foreclosures), will double by the time March, 2008 arrives.

If buyers or sellers have latitude in their positions, things will be slow for a while yet.

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Black Bear Realty Website
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