Existing Home Sales Debate: Why I Disagree With Calculated Risk

Today’s Existing Home Sales report from the National Association of Realtors came in below expectations with sales falling roughly 1% from November to December. Most analysts are calling this a disappointing report, but Calculated Risk’s Bill McBride disagrees.

Me? I think everyone is wrong.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.0 percent to a seasonally adjusted annual rate of 4.94 million in December from a downwardly revised 4.99 million in November, but are 12.8 percent above the 4.38 million-unit level in December 2011.

The preliminary annual total for existing-home sales in 2012 was 4.65 million, up 9.2 percent from 4.26 million in 2011. It was the highest volume since 2007 when it reached 5.03 million and the strongest increase since 2004.

Total housing inventory at the end of December fell 8.5 percent to 1.82 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace, down from 4.8 months in November, and is the lowest housing supply since May of 2005 when it was 4.3 months, which was near the peak of the housing boom.

Listed inventory is 21.6 percent below a year ago when there was a 6.4-month supply. Raw unsold inventory is at the lowest level since January 2001 when there were 1.78 million homes on the market.

Calculated Risk’s Bill McBride argues that this was a “solid” report:

Using the NAR surveys and sales reports would suggest 3.75 million conventional sales in December 2012 (SAAR), up 26% from 2.98 conventional sales in December 2011. That is a significant increase.

Also fewer distressed sales probably means more housing starts and new home sales – and that is the key for housing providing a “boost” to the economy in 2013.

Finally, when we look at the existing home sales report, the key number is inventory. And inventory is at the lowest level since January 2001, and months-of-supply fell to 4.4 months – the lowest since May 2005.

EHSInvDec2012 640x411 Existing Home Sales Debate: Why I Disagree With Calculated Risk

(Note: many “Pending Subject to Lender Approval” short sales are actually counted as Active listings, so the collapse in inventory is actually more dramatic than this chart shows.)

First off, none of the numbers are real. The game is completely rigged. That chart is the result of  five years of Government tinkering. No clear conclusion can be drawn except that we’re in the middle of an enormous economic experiment.

Sales are down because inventory, especially lower-end inventory, has collapsed. If there was would have been more to buy in December, more homes would have sold. The analysts are wrong to believe that the 1% decline represents weakness. It doesn’t at all. This market is on fire.

McBride, however, is wrong to suggest that low inventory is in some way a good thing.  It’s his third bullet point of positive news from the report. Low inventory isn’t the path to health, it’s getting sick all over again. McBride is confusing the disease for the cure.

Constricted inventory squeezes prices higher, bringing many homeowners back “above water.” But… think about what is actually happening: We are simply going back in time. If this continues, home prices will continue to rise and nobody will be underwater. Foreclosure crisis over. Short sales? Done. Problem solved, right?

Except we would be right back to where we were at the top of the housing bubble, with a global economy standing on a wobbling house of cards. Is this the goal? Is this what we want? This is certainly where current policy is taking us.

Some would argue that this time is better because it’s Uncle Sam holding all of the mortgages now, not the banking system. Forgive me for not feeling heaps better about this.

Negative equity isn’t the actual problem, it’s a symptom. The disease, is unsustainable debt, regardless of the value of the equity. The cure, is to reduce the debt, not to inflate the value of the collateral. 

Re-inflating the housing bubble may reduce the symptom of negative equity, but the disease of over-indebtedness will continue to eat away at the patient (all of us).

A healthy real estate market is a liquid market, where sellers can successfully sell and buyers can successfully buy. And it’s even healthier when homes are affordable. If you agree with these statements, then nothing about this report was good.

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About Greg Fielding

I am a longtime real estate agent who has pretty much seen it all during the housing boom as bust. With experience in selling high-end property and low-end foreclosures, raw land, short sales, development work, apartment buildings, and working with investors, I bring a well-rounded perspective to my work.I also have started to do some paid real estate consulting. If you have questions or just need some good real estate advice, book an appointment at http://whattodorealestate.com/In addition to selling real estate, my insights have been featured in The New York Times, The Big Picture, and regularly on Patrick.net. I have also done consulting work with ForeclosureRadar.Starting my career, in 2003, I have sold homes throughout Alameda and Contra Costa counties, specializing in Danville, Alamo, Blackhawk, San Ramon, Dublin, Pleasanton, Walnut Creek, Lafayette, and Orinda. I live in Danville with my three kids.


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5 thoughts on “Existing Home Sales Debate: Why I Disagree With Calculated Risk

  1. Tom Stone

    I do agree with you. I have a great deal of respect for Bill McBride, but he is flat wrong. There is nothing inherently good about higher home prices and there is nothing at all good about unsustainable debt. Looking at my local market I see anything under $1MM that is appropriately priced sell RIGHT NOW. But…despite years of Government efforts to hold up prices the only increases in price have been on the low end, under $500k. When I look at $500k to $1MM, prices have been flat or slightly down over the last year and over $1MM they are definitely down significantly ( Estates are highly individual, making adjustments for style and quality is tricky). An example of high end prices declining will be on the Broker’s tour today. 2436 Blucher Valley Rd listed in 2009 for $5.9MM, it’s now at $3.195MM and will likely sell for close to, but a little less than that. It was overpriced in 2009, but might have brought $4.5MM. Ouch. A healthy market is a sustainable market, we don’t have anything close to that.

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  4. Diane Cohn

    Good post. Constricting inventory to artificially raise prices is all just Bernanke’s way of bailing out the big banks. Higher prices help them get crap assets off the books. They don’t care about the debt ceiling, or first time buyers, they only care about their own balance sheets, which are pretty much steaming piles of shizz right now.

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