Wednesday, August 22, 2007

Crashachusetts Existing Home Sales: July 2007

Yesterday, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for July 2007 showing supposedly “encouraging” results with single family home sales increasing 6.0% compared to July 2006.

Keep in mind though, a 6% jump from last July is not saying very much as the result is still at the slowest pace of sales for a July since 1995.

Also, The Warren Group, which records much more comprehensive sales and median price figures based off of actual deed transactions, reported results that are more consistent with the latest results of the S&P/Case-Shiller home price index for Boston showing a more tame 1.5% increase in single family home sales with a 4.6% drop to the median home price.

But since we all know MARs results are skewed by MLS only listings and we have been following them all along, let’s just play along for the moment.

Possibly in a future post I’ll throw out the MAR numbers altogether and switch over the obviously more accurate Warren Group figures.

Along with MARs release, President Doug Azarian continued to spin his optimistic tales suggesting the buyers with “good credit” are back “buying again”.

“While the tighter lending standards may have taken some buyers out of the market over the past several months, it appears that those who have good credit and some equity, are getting the financing they need and are buying again.”

Azarian forgets to mention that buyers are buying like they are in 1995!

Mmmm… What a frenzy!

An important figure in today’s report though is the single family inventory and monthly supply which, while still showing overall inventory declining, shows demand slowing even faster resulting in an 8.6 month supply of homes, a 15% increase compared to last month.

Again, as I noted last month, June, July and August typically show the highest volume of sales for the year (see the chart below and click for larger version) so calculating the months supply from these months sales pace is a bit unrealistic.

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 3591 single family home sales per month resulting in a likely more accurate 10.3 “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 increase of 1.3% to the median price for a single family home as compared to July 2006 while the Warren Group again reported a more significant, and likely more accurate, drop of 4.6%.

With significantly falling prices, continued declining sales volume and a slowing pace of sales, it seems hard to believe that Azarian’s “encouraging signs” 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 for an even more accurate "real" view of the current market trend.

July’s Key Statistics:

  • Single family sales increased 6.0% as compared to July 2006
  • Single family median price increased 1.3% as compared to July 2006
  • Condo sales declined 0.1% as compared to July 2006
  • Condo median price increased 6.3% as compared to July 2006
  • The number of months supply of single family homes stands at 8.6 months.
  • The number of months supply of condos stands at 8.6 months.
  • The average “days on market” for single family homes stands at 123 days.
  • The average “days on market” for condos stands at 116 days.