Existing Homes Sales Bump, Very Misleading

While existing home sales are not a true barometer of new home sales, there was at least a bump up in existing home sales for May.  This rise of 2.4% to 4.77 million annualized units compares to 4.66 million units annualized in April and compares to Dow Jones consensus estimates of 4.80 million.  Before you celebrate too much that you can finally get rid of your I.O. loan, there is a reason here to suspect that the rise is there that isn’t necessarily the biggest news for sellers.

The original report for April was 4.68 million, so the 4.66 million is a slight revision lower.  But the real issue is that about one in three of the 4.77 million annualized sales were foreclosure or short sales.

Guess what this all means for average selling prices….. The average selling price was about $173,000, down from the $207,900 in May 2008.  That is almost a 17% drop.  So if you paid down that much of your total loan balance, then you can still sell your home.

There is another issue.  Appraisals are coming in very low.  It used to be that appraisers were rarely second-guessed and their appraised values were accepted without question.  But now banks and lenders are not willing to blindly take any appraisal without question.

Will the $8,000 tax credit help?  Maybe.  It cannot hurt.  The issue is that if a home buyer cannot afford the down payment, then the $8,000 tax credit is just fluff.

The inventories are down 3.5% to 3.8 million units, and that is a 9.6 month supply.  That is down from a 10.1 month supply last month.  That seems good on the surface, but again this does not necessarily reflect the shadow supply out there.  If there is any increase in the prices of housing, guess what is likely to happen to supply.  It could shoot up and thus put a lid on higher prices or could even create a double-dip.

Our own discussions with housing sector executives shows another trend that was not there before: inclusions and allowances.  Buyers are able to demand fixtures that would not have traditionally been in a sale and they are able to get allowances (or more) that have not been included in many traditional times.

The good news is that at lease houses will sell at lower prices.  The bad news is that this still feels like taking your kids to pick any gift in the whole store….  the dollar store.

Jon C. Ogg
June 23, 2009