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Tuesday, August 26, 2008


still not there

calculated risk highlights the latest results from case-shiller.

i previously noted that some distant glimmer of optimism may be warranted in housing as starts have fallen to the level of new home sales. but that is of course a very early leader -- typically, year-over-year real price changes won't go positive until 8-12 quarters following the bottom in new sales and starts.

new home sales for july will be out shortly (UPDATE: here they are), but as was seen in june -- even though new home inventories are now falling -- new home sales are also still falling. and this is in spite of radical price cutting and buyer incentivizing on the part of homebuilders, most of whom are screaming for liquidation.

july data for existing sales and inventory continued to be apocalyptic -- and that in spite of huge numbers of distressed sales.

It's important to note that a large percentage of these sales were foreclosure resales (banks selling foreclosed properties). The NAR suggested last month that "short sales and foreclosures [account] for approximately one-third of transactions". Although these are real transactions, this means that normal activity (ex-foreclosures) is running around 3.3 million SAAR.

many banks are attempting to clear subprime REO from their books with steep discounting, and as a result they've become a huge slice of existing sales. while those are clearing sales, they also indicate that the non-distressed existing home market is in worse shape that it would at first glance appear. inventory is at cycle highs and near all-time highs as a function of sales. a lot of that inventory growth is probably unrealistically (ie, backward-looking) priced housing that will not move until -- like new homes and distressed existing property -- steep discounts are accepted. note in the commentary of paul jackson at housing wire:

Our own guess at HW is that we’re seeing a small seasonal effect, combined with a strong REO effect in some of the hardest-hit local markets to date. REO agents we’ve spoken to in California’s Inland Empire have suggested to us that their listings are moving, relatively speaking, while retail listings are still sitting unsold; beyond that, early surveillance on recent mortgage vintages is showing a strong uptick in borrower delinquencies and defaults starting with July’s data.

that implied force should keep price change negative for the anticipated few years to come.

UPDATE: from calculated risk on july new home sales:

I now expect that 2008 will be the peak of the inventory cycle ... and could be the bottom of the sales cycle for new home sales. But the news is still grim for the home builders. Usually new home sales rebound fairly quickly following a bottom (see the 2nd graph above), but this time I expect a slow recovery because of the overhang of existing homes for sales (especially distressed properties). If the recession is more severe than I currently expect, new home sales might fall even further.

Looking forward, I'm much more pessimistic about existing home sales, and existing home prices, than new home sales.

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