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.