A Close Look at Existing Home Sales
My friend Katie Murphy at Hi-Tech Mortgage here in Lake Havasu City emailed this to me this week. It’s an excerpt from the 10/23/09 Existing Home Sales report by Steven A. Wood, Chief Economist for Insight Economics:
Existing Home Sales ROSE by 9.4% in September to 5.57 million, compared with market expectations for a smaller increase to 5.35 million. - This increase has lifted sales to their highest level since July 2007.
- Over the past year, existing home sales have increased by 9.2%. However, this is 23.2% below their September 2005 record high.
- About 45% of sales were estimated to be to first-time home buyers, spurred by low prices and the home buying tax credit from the government.
- About one-third of sales were estimated to be distressed.
The Inventory of Homes Available for Sale FELL by 7.5% to 3,630k. With this decline, the inventory of homes available for sale is now 15.0% below its year ago level. This reduced the months supply to 7.8, its lowest level in since March 2007. This is supply is significantly lower for relatively low priced homes and substantially higher for relatively high priced homes. However, there appears to be a large “shadow” inventory of homes available for sale, both from homeowners who have kept their homes off the market because of low prices and from financial institutions temporarily holding foreclosed homes off the market.
Home Prices continued to decline compared to their year ago levels. Over the past year, average prices have fallen by 6.5% while median prices have tumbled by 8.5%. Year-on-year prices have declined in 37 of the last 38 months and are still falling moderately, partly reflecting a shift in the composition of sales to lower priced homes and partly reflecting the much lower prices associated with distressed sales.
Bottom Line: Existing home sales peaked during the summer of 2005 and fell steadily through November 2008. - Since then, there has been a moderate recovery in sales.
- However, a significant number of the sales are of distressed properties, which is depressing home prices.
- The inventory of homes available for sale has fallen substantially over the past year and is now only modestly above “normal” levels.
- Anecdotal evidence suggests a substantial ‘shadow’ inventory that would come onto the market if sales (and especially prices) were to pick up.
- Home prices have been falling on a year-on-year basis for 3 years but there is some evidence that the pace of decline is beginning to slow.
