Yesterday, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for June 2007 showing continued declines in demand in the regions residential housing market with the sales of single family homes dropping 6.0% compared to June of 2006.Along with the release, MAR President Doug Azarian continued to spin his optimistic tale of price stabilization and inventory balance even in the face of renewed sales declines.
“While the second quarter wasn’t able to sustain the momentum of the first quarter compared to the year before, it was still very active … Looking at year-to-date numbers, we are not far off last year in terms of sales and median prices, while inventory and months of supply continue to go down. With only 7.5 months of supply, the residential market is now in ‘balance’. This is typically a good time for both buyers and sellers to come together.”
Azarian forgets to mention though that not only are inventories back on rise with the number of single family homes on the market increasing 1.7% since just last month, June is historically the region’s best month for sales effectively skewing the “months of supply” in favor of an unusually optimistic result.
Not that a little “smoke and mirrors” is all that out of the ordinary for MAR but let’s take a closer look to see how accurate it was for Azarian to call the market “balanced”.
First, the “months of supply” figure is calculated simply by dividing the total current inventory by the current month’s sales result.
For June, MAR reported a current inventory of 37,498 single family homes and 4,959 single family home sales resulting in 7.56 “months of supply”, a significant decrease from the 9.5 “month of supply” seen just this May.
But inventories have actually increased since May and June’s single family home sales were weak falling 6.0% below the results seen last year, so how could the “months of supply” have declined so dramatically?
Take a look at the chart below and it’s easy to see that June is by far the most active sales month for the year typically registering substantially more sales than the average month. (click for larger version).
This makes the June sales result NOT the best choice for calculating a truly accurate “months of supply” as it represents an anomaly in sales with respect to the rest of the year.Possibly a better choice would have been to simply average the monthly sales results seen in to date in 2007 and use that as the denominator.
This would yield an average of 3462 single family home sales per month resulting in a likely more accurate 10.8 “months of supply” of single family homes.
Also note that as seen in the chart above, home sales are continuing to weaken with 2007 results generally coming in below 2006 which were generally below the results seen in 2005.
As for home prices, MAR reports a decline of 1.6% to the median price for a single family home as compared to June 2006 while the Warren Group again reported a more significant drop of 4.6%.
As with last month, the Warren Group’s results are more consistent with the latest results of the S&P/Case-Shiller home price index for Boston and likely far more accurate than the MAR’s MLS-listed only result.
With significantly falling prices, continued declining sales volume and a slowing pace of sales, it seems hard to believe that Azarian’s “market balance” call and optimistic outlook has any merit especially when considering that all of this weakness is coming on the back of the historic declines seen in 2006.
A more likely scenario is that our area is experiencing a fundamental correction to prices that, through unusually low interest rates and historically easy lending standards, were able to rocket to irrational heights during the run-up years.
To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the year-over-year and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).
The “year-over-year” chart compares the percentage change, on a year-over-year basis, to the BOXR from the last positive value through the decline to the first positive value at the end of the decline.In this way, this chart captures only the months that showed monthly “annual declines” and as we can see, if history is to be a guide, we could be about one third of the way through the annual price declines with the majority of falling prices yet to come.
The “peak” chart compares the percentage change, comparing monthly BOXR values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.
In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.
As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.
Notice that peak declines have been more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.
As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.
June’s Key Statistics:
- Single family sales declined 6.0% as compared to June 2006
- Single family median price declined 1.6% as compared to June 2006
- Condo sales declined 3.6% as compared to June 2006
- Condo median price increased 4.4% as compared to June 2006
- The number of months supply of single family homes stands at 7.6 months.
- The number of months supply of condos stands at 7.2 months.
- The average “days on market” for single family homes stands at 126 days.
- The average “days on market” for condos stands at 124 days.
