Wednesday, June 03, 2009

Going Organic!: Organic Home Sales March 2009


With all the speculation of a quick end to the economic decline and numerous “bottom” calls for the nation’s housing markets it’s almost possible to forget the severity of our current predicament.

One notable development that appears to be boosting hopes has been the recent trends in new and existing home sales.

As I have noted in prior posts, I don’t believe that any flattening to existing home sales (i.e. rate of decline slowing) or the brief historic low for new home sales earlier in the year (followed by sequential increases) equates to a bottom in any way shape or form.

Both markets have elevated inventory, obviously declining prices and commonly occurring distressed products all working to suppress any real substantive turn around.

But what would be indicative of a “real substantive” turn around anyway?

I would argue that probably the most important indicator of real healing to the housing markets would be to see a trend, as “Mr. Mortgage” Mark Hanson puts it, “Organic” sales.

These would be sales between real typical home buyers and sellers… not “in the family” sales, “investor sales”, “quick flips” or “condo-izations”… or as S&P/Case-Shiller (CSI) puts it… “Arms Length” transactions.

So, a key to methodology of the CSI is that only “arms length” transactions are included in the formulation and S&P (or actually Fiserv) specifically vets each transaction to ensure that the “arms length” criteria has been met.

To that end, we can get a very good sense of real “organic” sales by looking at the “Sale Pair Counts” published by S&P for each of the metro areas.

I think you can see quite clearly from the charts below (click for super cool interactive charts!) that although the National Association of Realtors existing home sales (fraught with foreclosure and distressed sales) is registering a flattening to overall home sales, “organic” home sales are STILL in sharp decline in many markets.



8 comments:

  1. SATT, the organic sale story is noticed by CR for some time now. I think the thesis is right, sales will come down in later this year and drop even more at least the first part of next year. I have little doubt that real home prices will fall further, and nominal prices will fall a bit further as well. The stock market party will end when inflation kicks in.

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  2. SATT, the organic sale story is noticed by CR for some time now. I think the thesis is right, sales will come down in later this year and drop even more at least the first part of next year. I have little doubt that real home prices will fall further, and nominal prices will fall a bit further as well. The stock market party will end when inflation kicks in.

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  3. Anonymous2:05 PM

    You might be right JGU. In the 1990s downturn, nominal price declines stopped in 1992 and stagnated til 1996 (meaning real prices were dropping further).

    The lowest levels of sales was in 1996. It very well could be like that again. Except that the stagnation time will be longer (like til say 2015).

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  4. great post as usual. i honestly thought house prices were continuing to decline.

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  5. SATT, I hope you are not using your money shorting the market. The housing market is much more predictable than the stock market.

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  6. Nice angle, I had not seen that before.
    Hello to all at the paper economy!
    I've been reading the blog, I have not gone by the wayside.

    regards
    static

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  7. Stock market, green shoots rise from the ashes!

    But I'm still looking at this:

    "So the unemployed workers, dispossessed homeowners, and insolvent households will lead the nation on a recovery, while credit approval is much more strictly applied even to the creditworthy among us? Doubtful!" JW

    To use a phrase from the 80's

    "Go Figure"

    HA HA
    Static

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  8. Static,

    Good to see that you are back!

    ReplyDelete