brian writes:
I wonder if it's a result of financing... are lenders more likely to be more stringent with writing new home mortgages than on existing home mortgages?
brian | 04.25.08 - 6:30 pm | #

lendingmaestro writes:
Well, when a bank takes the property back at auction, it is a recorded sale and becomes a comp killer. I can't see how the NAR would take the time to distinguish between these recorded sales and "normal" sales.
lendingmaestro | 04.25.08 - 6:37 pm | #

R. Manhammer writes:
Perhaps the existing homes are in more desireable (closer in) locations with more stable neighborhoods?
R. Manhammer | 04.25.08 - 6:39 pm | #

nades writes:
Damn CR you're cranking out this type of work on a Friday afternoon! Good stuff!
nades | 04.25.08 - 6:39 pm | #

AllenM writes:
Your conclusion is most likely quite accurate with respect to yet more damage to come.

Although most new housing was being constructed at the fringe (RobD's exurbia), and hence, given high gas prices, is much less likely to find a nonheavily discounted buyer. This means that the current crop of homebuilders would be wise to stop building *right* now, and shut down for the duration and minimize cash burn.

More air under the curve as casual house sellers depart the market. That will leave desperate sellers and reos to make the existing market dive to lower than *new*.

No matter how I look at the data, I get a feeling of dread. The drops are starting to make a just over 4 million number looks possible for the year. That ridiculous climbing inventory doesn't bod well either, with a huge REO pipeline.

I fail to see anything worthy of optimism, and much worthy of further concern.

Someday this war's gonna end...
AllenM | 04.25.08 - 6:41 pm | #

Calculated Risk writes:
brian, I was wondering about that too.

lendingmaestro, that would certainly explain the graph. My understanding was the NAR didn't include the transfer to the bank during foreclosure - that isn't a "sale" by any reasonable definition.

Best to all.
Calculated Risk | Homepage | 04.25.08 - 6:42 pm | #

Lucky Jim writes:
I wonder--and there are probably data that would support or refute this--if it's related to where the new homes are. A large proportion of new homes were built precisely in the frothiest markets that have now seen the biggest declines. If you comapred new and existing home sale patterns in, say, Stockton, would you see the same pattern as you see nationally?

Also, new homes tend to be built in groups, as part of big developments. People may be wary of buying houses in areas where there are lots of homes for sale because they fear living in a half-occupied neighborhood or they worry that all those other sale prices will drag the price of their place down.

That said, I can think of a lot more reasons why I'd expect existing home sales to fall faster than new home sales. It's a puzzling result.
Lucky Jim | 04.25.08 - 6:43 pm | #

Elvis writes:
If the number seem dubious they probably are.

2008-2011 will likely be some vicious sub-historical median years. Real estate/housing will be avoided like loose women with open sores.
Elvis | 04.25.08 - 6:44 pm | #

Calculated Risk writes:
R. Manhammer, AllenM, location could be a good explanation - expecially with higher gas prices.

Whatever the reason, I expect turnover (as a percent of owner occupied units) to continue to decline.

Best to all.
Calculated Risk | Homepage | 04.25.08 - 6:44 pm | #

Northern Cali writes:
CR -

One thing the reports don't drill down into is the sales mix. It's important to remember that the mix of new home sales was heavily skewed to the "McMansion" category, particularly in California. Why? Margins were fatter. Why build a 3/2 when you can build a 6/3 on the same plot of land (add a 2nd story) and boost your margin $100,000? It's a no-brainer.

Now add two factors into the slowdown. First, take all of the non-conforming paper out of the wholesale market. While this hits the low-end (subprime), it gives a knock out punch to high-end (jumbos). Further, with a mild uptick in interest rates, affordability is priced downward, pushing low end buyers completely out and hi-end buyers down closer to the median, because the jumbo rates no longer work for those who want to "stretch".

End result? New McMansions sit and existing median homes move. Low end gets snapped up for rental property, where the numbers pencil out. Everything else low end gets stripped. Subprime moves back into an apartment, or with family.

Then we all hunker down and stock up on rice at Costco, 'cause we know a storm is coming.
Northern Cali | 04.25.08 - 6:44 pm | #

Gary writes:
CR, what about the possibility of builders selling off blocks of units to investors at auction or otherwise to clean up the balance sheet . . . would those then show as commercial sales? And be excluded from these numbers?
Gary | 04.25.08 - 6:46 pm | #

Walker writes:
Existing homes are in well established neighborhoods. Neighborhoods that I do not have to worry if everyone is a flipper with vacancies around every third corner. The purchases have been stretched out over time instead of all at once.

That, and have you seen the quality of new home construction? I would never by a home younger than 10 years. You need that long for all the crap construction to shake out.
Walker | 04.25.08 - 6:48 pm | #

Calculated Risk writes:
Northern Cali, mix is another good explanation. The new homes defintiely have much higher prices.

You can still find rice?

Gary, another good possibility. There is definitely something interesting here.

Best Wishes.
Calculated Risk | Homepage | 04.25.08 - 6:49 pm | #

Elvis writes:
Walker writes:
"Existing homes are in well established neighborhoods. Neighborhoods that I do not have to worry if everyone is a flipper with vacancies around every third corner. The purchases have been stretched out over time instead of all at once."

This is such a goofy argument. Flippers and people who moved up beyond their means pervaded every neighborhood. They chased appreciation everywhere. If you could get 20% on a on a $250k house or $1M house with nothing down, you buy the million dollar house so you can make $200k instead of $50k. That was the mentality. And that is the problem. Every neighborhood has considerable risk.
Elvis | 04.25.08 - 6:53 pm | #

Taos writes:
well here in Taos nothing is selling..no need to figure out the data!
Taos | 04.25.08 - 6:57 pm | #

Yossarian writes:
Northern Cali:
"One thing the reports don't drill down into is the sales mix."

Absolutely agree. I'd really want to see geographic data on this, too. At least by zip or SMSA or something. I heard on NPR anecdotal information about Washington DC suburbs not selling, but homes by public transit are.
This is a good theory... but a LOT of US cities don't have much real public transit. I wonder how this would play out in those many car and bus only cities. (being on a bus line rarely invites development.. too 'transitory')
Yossarian | 04.25.08 - 7:00 pm | #

barely writes:
After a week with simply horrifying numbers on the economy and housing, the markets finish UP. There's a real heavy pump into next week's lineup to spook the shorts out sellers can get out & bearish positions can be taken at juiced up levels. Setting up the diving board up a few notches.

A masterful job, really.
barely | 04.25.08 - 7:03 pm | #

Bob_in_MA writes:
Why Haven't Existing Home Sales Fallen Further?

CR,

My theory would be that new homes were heavily concentrated in the areas suffering the biggest fall in sales/prices: Inland Empire/Central Valley, Orlando, Phoenix, Las Vegas, etc.

It might be that if you compared existing home sales to new home sales in those areas, they'd be comparable.

In my area, there are very few new homes built for sale, and existing sales are down only moderately.
Bob_in_MA | Homepage | 04.25.08 - 7:09 pm | #

Large Carbon Footprint writes:
lendingmaestro writes:
Well, when a bank takes the property back at auction, it is a recorded sale and becomes a comp killer. I can't see how the NAR would take the time to distinguish between these recorded sales and "normal" sales.

This is incorrect. When a property transfers at a foreclosure auction, it is not counted as a sale.

In my opinion, the reason that resales are holding up better than new home sales is 100% due to the large number of REO sales that are occuring. In Southern California, there are about as many foreclosures this year as there have been sales - banks are taking back properties much faster than they can sell them.

But since there are a large number of REOs being sold every month, it is propping up the resale numbers, and it's going to keep happening for years and years.
Large Carbon Footprint | 04.25.08 - 7:11 pm | #

GRIM writes:
CR,

Since you are comparing contracts for sale (NHS) with closed sales (EHS), wouldn't you need to shift the EHS data (blue line) to the left by 2-3 months to account for the average period between contract and closing?

Appears that you might find a slightly better correlation between the two series if you do so.
GRIM | Homepage | 04.25.08 - 7:15 pm | #

grim writes:
Correction, 1-2 months.
grim | Homepage | 04.25.08 - 7:16 pm | #

JD writes:
I think all three reasons you give for the disparity are factors. But I think the first is the most impactful. Two plus years ago buyers were not so value concious. The common view was: Buy as much home as you can, home prices always go up. New homes have never been a good investment, but buyers didn't think about that two plus years ago, now negative publicity has made buyers value consious, dispoportionately impacting new homes sales.
JD | 04.25.08 - 7:19 pm | #

David Pearson writes:
Geographic mix could explain part of the difference, but wouldn't it have created a divergence on the way up?

Its also possible that a higher percentage of first-time buyers purchased new homes rather than existing. The credit crunch hit FTB's the hardest, so maybe new home sales were disproportionately affected.
David Pearson | 04.25.08 - 7:19 pm | #

barely writes:
Deeper discounts - more distressed sales - in existing. The gap might even get wider. That's of course as long as builders don't go BK & assets don't go onto bank balance sheets and become REOs.
barely | 04.25.08 - 7:23 pm | #

Dickeylee writes:
Hey Taos, I was out in your neck of the woods last August, and-WHEW-you got some doozy home/home prices. Those "earth ships", or whatever you call those dome clusters out in the middle of the desert/sage brush are EXPENSIVE! And they seem worth more if they have recycling toilets, whatever that means.
Dickeylee | 04.25.08 - 7:24 pm | #

justin writes:
I think it is kind of obvious. New homes are in areas that have undergone rapid recent expansion and are therefore more likely to suffer greatly during the down turn. You just have to drive into the burbs of vegas to see that. Estate after estate of subprime fodder.
justin | 04.25.08 - 7:26 pm | #

veblen writes:
Here in Phoenix, it may be because the new homes are disproportionately on the outskirts, with three follow-on effects:

1. As existing home prices have moderated, people don't have to drive so far.
2. As gas prices shoot up, homebuyers' calculations of the cost-to-own changes.
3. A lot of the new homes were sold on a "drive till you qualify" basis, and those loans are no longer available.
veblen | 04.25.08 - 7:27 pm | #

KnotRP writes:
New developments have a chicken-egg problem...no one wants to move in and end up being one of only a few homeowners. That tends to imply that existing neighborhoods will be more attractive to prospective buyers, which should lead to relatively more sales.
It's a simple explanation, and it doesn't require assuming the numbers must be off....so it might very well be true.

Would any of you be first to buy on a new block, right about now?
KnotRP | 04.25.08 - 7:30 pm | #

Nick writes:
Totally makes sense, for the various reasons people have mentioned. Theories I agree with, in no particular order:

- New construction is further away from cities, in areas which will rapidly decline as the market corrects from over-expansion
- New construction is shoddy with lots of cost-cutting
- Aggressive REO price cuts as banks realize that holding NPA's is not a winning long-term strategy are driving the price reduction, builders are not pricing aggressively enough
- New construction is going to be on the higher-end of price, which is going to be harder to finance and attract less interest
- Risk of buying from a builder who might not be there in a couple years if there are problems with the construction
- New construction has slowed, so less new houses going onto the market as time goes on, especially compared to REO's
Nick | Homepage | 04.25.08 - 7:31 pm | #

Zephyr writes:
Interesting information. I would guess that product mix and geography mix are important factors. The higher than usual inventory glut might be a factor as well - causing the builders to cut production more than usual. So new sales would garner a declining market share.
Zephyr | Homepage | 04.25.08 - 7:35 pm | #

Rob Dawg writes:
New homes are significantly more expensive than existing home sales. as simple as that.

Highlights of Annual 2006 Characteristics of New Housing

Please note that the estimates shown here are based on sample surveys and subject to sampling variability as well as nonsampling error.

In 2006:

· The average single-family house completed had 2,469 square feet, 769 more square feet than in 1976.

· 78% of all new single-family homes completed were speculatively-built (house and land are sold together as part of the same transaction), up from 65% in 1986.

· 39% of new single-family homes completed have four or more bedrooms, almost double the rate of just 20 years ago.

· 26% of new single-family homes sold have 3 or more bathrooms, almost triple the rate from 1986.

· Half of all single-family homes were completed in the South region, up 10 percentage points from 1976.

· Approximately 90% of all single-family homes completed have air conditioning!

· Approximately 95% of new single-family homes sold have at least a 1-car garage or carport.
Rob Dawg | Homepage | 04.25.08 - 7:37 pm | #

Thai writes:
What about oil prices and employment? Is it possible existing homes are located closer to existing work, whereas new homes were built further from job centers?
Thai | 04.25.08 - 7:38 pm | #

Zephyr writes:
Global demand for resources could be preventing construction cost from declining as much as usual in a downturn (keeping costs high relative to US market demand), causing US builders to have tighter margins than usual for a downturn. This would aslo cause them to cut production more than usual.
Zephyr | Homepage | 04.25.08 - 7:39 pm | #

sdtfs writes:
Buy my place and I'll throw in two bags of rice!
sdtfs | 04.25.08 - 7:39 pm | #

Susan writes:
Home Prices Drop Most in Areas with Long Commute : NPR
http://www.npr.org/templates/sto...9803663& sc=emaf

Of course, this is prices, not sales . . .
Susan | 04.25.08 - 7:40 pm | #

barely writes:
"homes were built further from job centers"

What jobs? I work from home, so I could be in HI or AK and it wouldn't make a lick of difference. A lot more people than you think are in that situation.
barely | 04.25.08 - 7:41 pm | #

Barley writes:
"I expect turnover (as a percent of owner occupied units) to continue to decline"

This to me is not a profound statement. In this economic environment its kinda saying the sun will present itself in the next 12-24 months.

My sense is that economic change has been compelled/propelled by the information that exists and the information landscape is now immediate and digital. This in turn causes dramatic shifts in the behaviour.

Economists are now faced with the tough task of not only forecasting change but the timing of that change.

This is a new issue. Behavioural finance will tell us change will happen - I think we all here are missing the point - the timing of the change will take us off guard.

To stick my neck out on your point, I dont think the word "decline" will do justice to the "cliff diving" thats about to occur.

Just my opinion.
Barley | 04.25.08 - 7:41 pm | #

Rob Dawg writes:
Is it possible existing homes are located closer to existing work, whereas new homes were built further from job centers?

Nope, not possible. Sorry to be so terse but yet again the Kunstler meme is reanimating no matter how many times I kill it. This is exactly what Tanta is talking about with the "walk away" claims but worse.

If work jobs colocation were an issue then the transect to bet against would be the downtown condos conceived at the height of the bubble.
Rob Dawg | Homepage | 04.25.08 - 7:53 pm | #

blueridge writes:
REgarding inventory - is there a natural "cap" on inventory? We keep looking at inventory numbers to go up, but they seem to have leveled off recently. Have we bumped into a cap - caused by realtors maxing-out on listings?

If so, the data might be sending the wrong message - i.e. growth in inventory has halted, therefore things are starting to turn around. Instead, inventory might just level off and stay there.
blueridge | 04.25.08 - 7:56 pm | #

Ministry of Truth writes:
My guess is the opaque data coming from the NAR. Without the raw data to check the resultants, how can we give any credibility to the NAR?
Ministry of Truth | 04.25.08 - 7:56 pm | #

Mistah Bonzai writes:
I'spose that the following link to the NAR Existing-Home Sales Methodology isn't news to most of you but just in case you are curious...

NAR Existing-Home Sales Methodology

A couple of general purpose qulaifiers extracted from the page:


"The methodology in calculating existing-home sales statistics is really quite simple. The monthly EHS economic indicator is based on a representative sample of 160 Boards/MLSs. The home sales data (raw data) is divided into the four census regions: Northeast, South, Midwest and West. The raw sales volume from the participating Boards/MLSs is carefully evaluated by NAR economists to ensure accuracy.".

"Seasonal adjustments, which are determined by using the X-11 Variant created by the Census Bureau, are then used to factor out seasonal variances in resale activity".
Mistah Bonzai | Homepage | 04.25.08 - 8:08 pm | #

ShortCourage writes:
http://online.wsj.com/article/ SB...s_us_whats_news

From the WSJ ($):

"Calpers-Linked
Land Partnership
Gets Default Notice"

A large California land partnership involving one of the largest U.S. pension funds has received a notice of default on a $1 billion loan after failing to meet certain terms of its lenders.
.
.
.
MW Housing Partners, which includes Calpers, took a 68% financial stake in LandSource in early 2007 amid the slowing housing market. Cerberus Capital Management's LNR Property Corp. unit has a 16% stake, and home builder Lennar Corp. has a 16% stake...

One problem with ventures such as LandSource is that they typically require builder partners to acquire land on a schedule, even if they don't need the lots. They also can require partners to contribute additional equity if the land's value falls below a threshold.

LandSource's trouble followed mounting stress at two large joint ventures in Las Vegas, called Kyle Canyon Gateway and Inspirada, involving many of the nation's largest home builders. One partner in these ventures said Friday that it is unlikely that it will meet its obligations to the deals. The partner, home builder Kimball Hill Homes, filed for Chapter 11 bankruptcy protection Wednesday.

ShortCourage | 04.25.08 - 8:15 pm | #

nades writes:
I have an off topic question if anyone wants to bite:

I was just checking out Ambac's financials on google http://finance.google.com/financ...ce?q=NYSE% 3AABK and I noticed that they have been losing money since 2006. Is that true? Seems unlikely that realized loses 06 thru 08 and only recently did their stock tank.

I'm wondering if they are somehow applying losses retroactively and getting a tax credit. Of course that seems like an insane law...

Does anyone know if they've been getting beat up this bad for this long and showing it in their statements?

(On a side I saw a video of the CEO at housing wire and he was saying that he wanted to include a listing of all their guarantees, and collateral on their website... He may have been posturing but it sure sounded good.)
nades | 04.25.08 - 8:18 pm | #

Gary writes:
Buy my place and I'll throw in two bags of rice!
sdtfs | 04.25.08 - 7:39 pm | #

I've got General Tso's flavored rice shooting out my nose from that one!
Gary | 04.25.08 - 8:22 pm | #

Rob Dawg writes:
A large California land partnership involving one of the largest U.S. pension funds has received a notice of default on a $1 billion loan after failing to meet certain terms of its lenders.

Ahhh the first shoe. Long time readers of CR may remember this discussion from what(?) two plus years ago? CalPERS within that time announced a planned increase in their percentage of assets deployed in real estate related investments. At the time we were talking high single digit portfolio exposures but I expressed the opinion that the true pass through liability was far higher.

I predict we are going to discover a whole bunch of municipal and higher government exposures far beyond what a look at the books would indicate.
Rob Dawg | Homepage | 04.25.08 - 8:23 pm | #

nades writes:
Rob I think a lot of these pensions are going to face is a shift of more people on the teets. More and more people are retiring and if they are tied up in illiquid assets and forced to more it could get ugly...

On a similar note I read something about 6 months ago about how they are all about international real estate now. Chasing bubbles with a splash of currency exposure... Good times....
nades | 04.25.08 - 8:30 pm | #

FT Woods writes:
Didn't The CalPers Chairman just announce he's moving on...hold on...Jesse Amer Cafe has it here:

The CalPERS CEO is stepping down according to Bloomberg Television. The Chief Investment Officer resigned yesterday to pursue an independent career in 'green investment.'

http://jessescrossroadscafe.blog...04/ceo- and.html
FT Woods | 04.25.08 - 8:37 pm | #

nades writes:
Warning not for the faint of heart

http://clipsyndicate.com/publish...574215? wpid=963

Who wants to see some comedy... Larry Yun is arguing that whether or not REO is counted in the home sales the fact is that it does matter as an economic driver... (of course i'm paraphrasing with a twist, none the less...)

..........
nades | 04.25.08 - 8:42 pm | #

Red writes:
Uh, if you stop building new homes, you got none to sell? Isn't new home construction way down? Whereas, once a new home has been sold once, it is now an existing home sale; and there are hordes of "new homes just a few years ago" for sale now, at big discounts because the owners can't keep paying.
And builders can't drop prices as much as owners of existing homes can; many folks may have owned 20 years or more and can sell for half peak value and still have huge gains, they never believed prices got that high anyway.
(my home seems to be worth more than 400% what I paid for it in 1987)
Red | 04.25.08 - 8:42 pm | #

Gary writes:
Red -
I thought new home *starts* were way down . . . but completions and inventory were still high, thus, plenty of homes to sell.
Gary | 04.25.08 - 8:47 pm | #

Gary writes:
And to your last point Red -
Sell now or be priced in forever!
Gary | 04.25.08 - 8:48 pm | #

Beaver writes:
...as a Residential Moving Conultant in OC, CA what I am seeing is almost NO Volume coming from the Resale Home market...the folks that have to move because of a job are renting their home and telling me "I am waiting for the market to come back"

I guess the activity of resale sales is currently heavily skewed towards the foreclosuree/short sale/turn 'em into rental market...and these folks don't use a mover to move out or move back to the house....

I think the Retirees who would normally be selling and moving out of state have decided to wait until 2009 to move because they have to compete with the lower priced foreclosures/resales in their neighborhood and the potential buyers are looking for the "deal of the cenury"....

I am also dealing with a number of customers who schedule their move and then put it on hold due to a "mortgage problem" somewhere in ther chain...

I really don't think the Resale Home Sales, which drive my business will have a "Typical Busy June"...I am very pessimistic for '08...but expect an upswing in my business in '09 as people adjust to the new market and get on with their lives and deal with the reality of getting less money from their current home....

My gardner, Jose, told me today that he plans to pay down the mortgage on the home he owns in Garden Grove/SantaAna and turn it into a rental in late 2009...he knows he can't sell it for much since he has a "strpped clean REO property" next door...the guy next door took out his new windows, doors, patio pavers and his pool equipment when he left the house!! Jose understands "comps"

Jose, doesn't want to buy now because the market is filled with FC properties, but figures that in'09 or '10 he can have his pick of many upscale properties in a good school district that will be priced right and have been well taken care of by the retiree or transferee that is now selling his home....

Jose figures his current home (as a rental) will pay for his kids' college education and the next home will put them in a good school district so they can get into a good college.....

for Jose the future looks bright...for me: I am currently the working/underemployed
Beaver | 04.25.08 - 8:52 pm | #

Gavin writes:
Here is an example of how existing home sales have fallen less than new home sales. According to this article in San Joaquin county

"In the first quarter of this year (2008), 364 new houses were sold, down 8.8 percent from 399 in the fourth quarter of 2007, according to the Gregory Group, a real estate information and consulting service in Folsom."

http://www.recordnet.com/apps/pb...0311/-1/ A_BIZ03

So, new home sales have fallen since the last quarter of 2007 but existing home sales are actually up over the last year.
Gavin | 04.25.08 - 8:53 pm | #

rich writes:
ShortCourage,

Thanks for posting that. It shows two things. Big pension funds got lured into these leveraged land ventures; and the HBs aren't just screwed because they can't build and sell houses at a profit.

They are like Target. If they just stuck to the knitting they knew, they wouldn't be sucking so much wind. But it was too easy for them to get into the "leveraged finance" biz.

So, with these leveraged land deals, they take a chunk out of California public employee pensions and accelerate their own demise.
rich | 04.25.08 - 8:56 pm | #

rich writes:
>the guy next door took out his new windows, doors, patio pavers and his pool equipment when he left the house!! Jose understands "comps"

Taking the pool equipment has gotta be the last straw.
rich | 04.25.08 - 8:59 pm | #

Bent penny writes:
No suprises here
since when has buying anything new been cheaper than second hand?
Existing homes just need maintanance while new ones have to pay back the building costs
Not just homes, every second hand item has been artificially devalued to create a market for new stuff in a throwaway culture
When the chips are down people mend and make do.. the paradigm shifts quicker than the speed of light in a vacuum
Bent penny | 04.25.08 - 9:00 pm | #

Phil Glau writes:
I agree with R. Manhammer above.

Existing homes tend to be in more desirable areas. New homes are mostly built in the outlying areas away from the established areas.

Los Angeles is a particular example. There are no (or essentially no) new homes in the Los Angeles Core (From the Ocean to Downtown) All new developments are in areas far from Downtown ( 1 to 2 hour commute.) The reason people were buying there was because they were priced out of LA. As LA falls (slowly), buyers who would otherwise have bought new homes in Riverside are once again able to buy closer to the core.

Thus while the LA Core has fallen 5 to 17% depending on ZIP, the outlying areas of the Inland Empire and the Deep Valley have fallen by 20 to 35%.
Phil Glau | 04.25.08 - 9:03 pm | #

transient writes:
Maybe because new homes are empty, and hence no use to builders until they're sold, while existing homes usually have someone living in them, so there is less incentive to drop the price and sell it.
transient | 04.25.08 - 9:15 pm | #

jim 94121 writes:
i agree it has to do with desirable vs. not, in town vs. far from cities, and perhaps experienced vs. inexperienced homebuyers? Here in the Bay Area, new homes are out of town and devoid of charm. You get more sq ft but the well-heeled are less likely to be found there. Would be illuminating to see new vs. existing sorted by sale price.

Did I see something about loose women ?
jim 94121 | 04.25.08 - 9:29 pm | #

RayOnTheFarm writes:
New developments have a chicken-egg problem...no one wants to move in and end up being one of only a few homeowners. That tends to imply that existing neighborhoods will be more attractive to prospective buyers, which should lead to relatively more sales.

There is also the issue of construction energy consumption being a component of new home prices. It is not so much a part of the price of an existing home. All those trades, and materials being shipped, are having their underlying costs jacked up by the fuel prices. An existing home (REO or otherwise) is a done deal. You might have some sod or furniture delivered, but thats it.
RayOnTheFarm | 04.25.08 - 9:31 pm | #

Canadian watching with popcorn writes:
This should help........
Free rice with every home purchase.
http://network.nationalpost.com/...e- purchase.aspx
Canadian watching with popcorn | 04.25.08 - 9:35 pm | #

doom writes:
"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

I just came across this quote. We are reliving history.
doom | 04.25.08 - 9:38 pm | #

Acerbic1 writes:
Northern Cali - you nailed it buddy. Will be interesting to see if the new "conforming jumbo" financing will have any impact, but I tend to doubt it. Even with the forwards being offered by Freddie to the big lenders, I'm not sure the demand is there even at a somewhat better price point.
Acerbic1 | 04.25.08 - 9:38 pm | #

HappyRenter writes:
As far as understand the new homes only appear as "sales" when they close (post construction) there fore if you put down 1% to hold the home 2 years ago you are much more likeley to abandon this small deposit if you think the place has declined in value by 20%.

Used homes tend to have a much shorther period between the deposit of earnest money (3% in CA) and close of escrow, so the price shouldn't have declined by too much in that period.
HappyRenter | 04.25.08 - 9:41 pm | #

VennData writes:
The other mysterious question is, How could 900B-plus in HELOC extraction in a recent fiscal year not have created a massive consumption boom in a 13T economy?

Answer: It all went into to other real estate. Which 'splains EVERYTHING.
VennData | 04.25.08 - 10:02 pm | #

Outsider writes:
We bought last summer. We didn't even consider new housing because: 1) New housing construction stinks -- after 20 years, those things are going to be shot, and 2) who wants to live in a cookie cutter development with small lots and no privacy? No thank you. No landscaping, all the trees are knocked down, etc. Dry like toast.
Outsider | 04.25.08 - 10:13 pm | #

All Fall Down writes:
Dickeylee writes:
"Hey Taos, I was out in your neck of the woods last August, and-WHEW-you got some doozy home/home prices. Those "earth ships", or whatever you call those dome clusters out in the middle of the desert/sage brush are EXPENSIVE."

Here's one reason the prices are so high there. A contractor friend of mine - his work is of the same quality as that of Norm Abrams - moved from Maine to Northern New Mexico to practice his craft. After three years of struggling to make a profit he moved back to Maine. He told me that if one wanted to produce a quality product it was almost impossible to make money. He said he never met a New Mexican carpenter that possessed a square, level and plumb bob. Consequently everything was done several times to get it right. Also, at least two or three of the longest boards that were intended to be used as rafters would have 16" inches cut off and used for fire blocking. Naturally the rafters needed to be replaced. He referred to the the seeming lack of care as "the filter." If the local attitudes drove you crazy you were "filtered" out and went back home.
All Fall Down | 04.25.08 - 10:22 pm | #

MD Owner writes:
If you are not a defaulting buyer in the past couple of years aren't you better able to set the price at whatever will get a sale these days? When I sold my house 11 months ago the realtor analyzed the comps and came up with a value, it sold in 2 weeks happily. If it hadn't I would have cut the price, no big deal as the price we got was 2.5 times what we paid 8 years previous.
MD Owner | 04.25.08 - 10:24 pm | #

transient writes:
Please ignore my previous post. I was thinking price, not volume.
transient | 04.25.08 - 10:25 pm | #

Cobradriver writes:
I know a lot of people in different areas won't believe this but used homes in SW Florida are selling. Why?
Deep discounts. I had 2 tennants give me notice today. They both bought existing homes in and around the Cape Coral area.

Both told me the prices were under 60k for the homes. Prices on certain homes/areas have come down. On new construction around here? Not enough to be competitive yet.

Oh,24-28 months ago in Charlotte county under 100k you MIGHT get lucky to find a dumpy trailer in a park.

As of right now???

565 listings with over 130 3/1's under 100k. And prices are still falling...hold on to your pants. It's gonna get even more interesting

Chris
Cobradriver | 04.25.08 - 10:39 pm | #

Cobradriver writes:
Here is a perfect example of how fucked our market is...
Current listing on the MLS. Owned by Deutsche Bank. BTW they now own 70+ REO's in Charlotte County.

http://tinyurl.com/4lwzdo

A 3/2 that is probably still a little over priced. Now for the fun. Here is the sale history.

10/1987 VACANT $74,400
9 /1996 IMPROVED $100
3 /1998 IMPROVED $34,000
7 /2005 IMPROVED $152,500
8 /2007 IMPROVED $100

After the FC sale it has taken 8 months to get it listed...Gotta love a place that looses 50% in 11 years and roars back like that!!!

Chris
Cobradriver | 04.25.08 - 10:54 pm | #

Martin CT writes:
I suppose that new home builders are more pressed for cash (seeing the writing on the wall, etc.) and are more motivated to sell in the current market.

Most individual homeowners can be more patient and wait for a better price.

Or is there more to it...?
Martin CT | 04.25.08 - 11:13 pm | #

REBear writes:
paid 39.99 for a 40LB bag of rice.
paid 50 to fill my car.

The fed clearly has an eye on inflation.
REBear | 04.25.08 - 11:26 pm | #

Viewing with alarm writes:
Good article in Daily Telegraph about abrupt downturn in European economy. Explains Euro drop and rumbles about a credit crunch. Well I hope misery does love company!
Viewing with alarm | Homepage | 04.25.08 - 11:36 pm | #

russell120 writes:
In my neighborhood (in the Carolinas) we have a mini-development of about 18 homes.

We have also had a number of people who were transferred or found new jobs out of state, and one home builder who went BK the old fashion way (he confused cash flow with profit).

The existing homes are selling well, it takes a month or two, but they sell. Only one of the new homes have sold.

The new homes are very nice, but their price per square foot reflects current builder cost inflation. They are empty. The landscaping has not grown yet.

Just one block away you have lots of greenery, and an amazing amount of 3-8 year olds running around.

If you are moving your family into a new area, and you are unsure of the housing market, there are a lot of question marks about a (very nice) brand new neighborhood.

I vote for the fear of living in an empty neighborhood, combined with REO sales. The overall numbers could drop, but I see no reason why existing homes won't hold this advantage until the uncertainty ends and/or the REO supply diminishes.
russell120 | 04.26.08 - 12:08 am | #

w writes:
doom, here is the next one:

"I am convinced that through these measures we have reestablished confidence" -- Herbert Hoover
w | 04.26.08 - 12:17 am | #

republicans are traitors writes:
"This suggests that sales of existing homes could fall significantly more in 2008"

ding, ding, ding, ding.
republicans are traitors | 04.26.08 - 2:40 am | #

IM writes:
What if appraisals were falling more rapidly for existing homes than new homes? Lower LTV for existing homes mean higher probability for lender approval. Could it be?
IM | 04.26.08 - 3:30 am | #

mannfm11 writes:
I appreciate this post, as it puts into perspective something I have been questioning for some time. I knew that 4 million was an all time cap on sales until 1996, which I believe was the beginning of the bubble in everything. Every year since 1996, we have topped the prior all time high. I keep mentioning this in posts I make around the net and haven't received much in the way of feedback. I am quite certain I saw this second chart on CalculatedRisk and am happy you put it out again I would venture that for sales to get cleaned out, we are going to need to see a few years in the 3 to 4 million range. It is clear that sales in excess of 4 million are associated with a housing bubble and little else over the history of US housing. We are going to have a long liquidation of close to 20 million excess home purchases over the past 12 years. No matter how you slice it we are looking at 20 million abnormal sales and a good portion of them will be liquidated. I have been in the real estate business, both as a sales person and a mortgage officer in the DFW area in the 1980's. We won't see an easy rebound from this and even if they bail it out short term, Freddy Kruger is coming back.
mannfm11 | Homepage | 04.26.08 - 5:43 am | #

jm writes:
mannfm11,

I think 20 million excess is much too large a figure.

Because the population has grown quite a lot since the '80s, the home ownership rate measured by Census -- the fraction of household heads reporting themselves as owners in Census surveys -- was below historical trend in the early '90s. Probably due to some combination of the deflation of the '70s bubble, the early-'90s recession, and other economic and demographic factors.

So the sales rate in the late '80s and first few years of the '90s was probably below what it should have been. And for that very reason there was already pent-up demand for housing in the mid-90s, when immigration of engineers and scientists from India, China, and Eastern Europe really began to take off, further intensifying demand. I think that genuine demand was what got sales add prices onto the uptrend. I wonder whether one reason for the disintegration of lending standards after 2000 might not have been that genuine demand for housing in the late '90s led to expansion of capacity in the mortgage lending business, such that when the pent-up demand was satisfied, the only way for the lending businesses to avoid contraction was to lend to less and less credit-worthy borrowers, and this further intensified the boom to the extent that the supply of greater fools became utterly exhausted. (Note that the bubble wasn't burst by any marked increase in interest rates -- it didn't burst -- there just weren't enough greater fools available to keep it growing -- it deflated, rather than bursting, and the crisis didn't start until the consequences of the slow deflation came into view in the financial markets.)
jm | 04.26.08 - 9:56 am | #

Marshall writes:
In a downturn new homes on the market, and thus sales, will drop as people stop making new homes. Existing homes... exist, and will be on the market in even the worst times, as people die, move, divorce, etc.

So, you should factor in housing starts as well. If you look at this graph

http://www.census.gov/briefrm/es...ww/ esbr020.html

you see that housing starts started declining precipitously about the same time that as the new and existing curves in your graph started diverging.
Marshall | Homepage | 04.26.08 - 10:44 am | #

Markar writes:
Zip Realty has had a huge spike in sales(not necessarily closes) in the Inland Empire in April. How many are REOs? 80+% according to an insider
Markar | 04.26.08 - 10:59 am | #

Markar writes:
IM writes:
What if appraisals were falling more rapidly for existing homes than new homes? Lower LTV for existing homes mean higher probability for lender approval. Could it be?

No, more and more appraisals are coming lower than contract which means the seller has to kick in the difference. The buyer never will in this market unless he's out of his mind
Markar | 04.26.08 - 11:03 am | #

Lilguy writes:
I, too, am growing increasingly suspicious of NAR data--not just their highly spun news releases.

What concerns me (& I have begun tracking) is the process NAR uses for revising their previous month's data on sales. My hypothesis is that their preliminary (current) sales number reflects a near high-end estimate of the sales volume. This is the "headline" number. Then, a month later, they revise the number downward to a mid- to low-end estimate, making the negative change to the present month seem smaller. No one pays any attention to this revision, just the "small" headline change. It's only looking at the YOY numbers that the staggering loss in home sales (& prices) becomes evident.

Indeed, I find it much more valuable to look at the change in market value YOY using sales volume and mean sales price. Right now, the sales value of re-sale market is down 35%, or more than $600 billion from its 2005 high.
Lilguy | 04.26.08 - 11:25 am | #

John Stark writes:
Not sure if this makes any sense--but in small-town America (where I live) a lot of the building is done by smaller-scale local builders who have been around long enough to know the good times never last. At the first whiff of market softening, these guys stop building spec homes, and the inventory of new homes on the market levels and then declines fairly rapidly, leading I assume to a drop in new home sales. Can't sell what isn't there.

I get the impression that in the bigger cities, the NYSE-listed corporate building giants keep on building because that's what they do, just like Chrysler keeps building cars.
John Stark | 04.26.08 - 1:22 pm | #

Sebastian writes:
Phil Glau said: "I agree with R. Manhammer above.

Existing homes tend to be in more desirable areas. New homes are mostly built in the outlying areas away from the established areas...."

I agree with these posters, and others who have alluded to similar ideas. This "bust" is more about the froth being blown-off, i.e., to-Hell-and-gone brand-new developments of housing priced as if they were much better-located.

This would explain a lot. It would explain why new home sales are falling so much faster. Sales prices appear to reflect this, too, with new home prices falling farther from their peak than existing-home prices.

http://www.realtor.org/wps/wcm/ c...40efe0c8bc1f2ed

http://www.census.gov/const/ uspr...sprice_cust.xls

(Yes, there will be differences in the calculations, but trying to find the theory that fits the most facts is the job.)

It would also explain why Case-Shiller numbers paint a worse picture than OFHEO numbers.


Sebastian
Sebastian | 04.26.08 - 1:27 pm | #

Estragon writes:
From the Census.gov explanation on how they calculate new home sales:

If the house it is not yet started or under construction, it will be followed up until completion and then it will be dropped from the survey.

In other words, if I'm understanding this correctly, new construction built on spec but not sold before completion rolls off the sales survey, and the eventual sale is missed (as a new home sale).

I assume (but don't know) that at least some newly built but unsold home would eventually be listed with a NAR reporter and the sale captured as an existing home sale.

If this is the case, it would go some way in explaining the apparent divergence in new vs existing home sales declines.
Estragon | 04.26.08 - 4:07 pm | #

J.Goodwin writes:
The general economy might be creating favorable conditions related specifically to existing home sales. New homes tend to be in suburbs, and in many cases are in places that have no transit, no garbage pickup, no schools, etc because they are in unincorporated areas.

A lot of people have been attempting to move closer to their jobs, or are moving to places with transit, or are trying to live a more urban lifestyle because, in general, it's less expensive (if you can avoid owning a car at least). All of those things favor existing home sales, because new homes aren't going up in places conducive to that life.
J.Goodwin | 04.26.08 - 4:31 pm | #

Bottomdweller writes:
Property seller psychology, and to a lesser degree financial character, is primary factor behind the difference in drop velocity to date. Significant factor in price stickiness occurs due to homeloanowner emotional involvement, and results in a lag in true market price acceptance. So the class of existing home sales is suffering from *relatively* unsophisticated sellers holding prices. Price holding in existing class also being subject to inability to lower pricing due to leverage levels, market ignorance and denial, as well as balance sheet strength by those sellers with no financial urgency to drop asking.

New home sales class obviously driven by more sophisticated sellers, with generally greater balance sheet distress and urgency than existing class. New home class is also generally *smarter* money looking to pull chips off the table faster than existing class. If you see the cliff coming, better to bail before you hit the edge.
Bottomdweller | 04.26.08 - 10:20 pm | #

Tom writes:
A few things to note:

First, there is obviously a potential for new home sales to fall by more than existing home sales, as the former includes NO turnover of existing stock. E.g., in theory, if all home builders in aggregage decided that there was just too large a glut of homes to sell at a profit, building could stop and new home sales could go to zero. Existing home sales would not.

Second, housing turnover looking just at the owner-occupied housing stock isn't quite right. The NAR data include sales of investor properties and vacation homes, and that can be a non-trivial part of sales. In addition, the stock of "seasonal" housing units, "housing units occupied by persons with usual residences elsewhere" (URE in the Census data) and "vacant housing units for occasional use" combined has grown at a much faster (double) the pace of the owner-occupied housing stock over the past decade.

Finally, the NAR's methodology would not in general count a bank/lender's acquisition of a foreclosed property at auction. It would, however, capture a decent chunk of REO sales. NAR's methodology does not involve deeds recorded. (A broad description is on its website).
Tom | 04.27.08 - 12:27 am | #

Jon H writes:
I'd think existing home sales would be buoyed by house shoppers turning from new homes to less-expensive existing homes.
Jon H | 04.28.08 - 1:49 pm | #