Existing home sales for August were released Monday. They declined nearly 5% from July, with July revised down from the original report. The brain trust on Wall Street was expecting a 1.3% decline.
It was only a matter of time before home sales started dropping again. But a drop of this magnitude in August took me by a bit of surprise. Of course, the National Association of Realtor’s chief “economist” offered pathetic excuses for the hammer applied to home sales in August with half-truths, distorted truths and omission of facts. I was actually a bit shocked by the transparency of his apologies for the highly disappointing report.
For instance, every month he blames disappointing sales on low inventory. The NAR is showing 5.2 months of supply as of the end of August. However the inventory jumped to 5.2 months of supply from 4.9 months in July. And the NAR inventory numbers are lagged by a couple months and do not include “coming soon” listings, which are listings exclusive to the listing broker for typically 30 days before they hit the MLS database.
Furthermore, based on what I’m seeing all over the metro-Denver area, the number of new listings accelerated toward the latter half of August and continued to increase on a daily basis throughout September. This is interesting because typically listings tail off toward the end of the summer as families focus on back-to-school and then the holiday season. Even worse for the market, price reductions are hitting the market at an alarming rate. It reminds me of 2007-2008 in Denver.
I get emails from readers describing similar observations in several other cities. If you are not seeing what is going on in Denver, stay tuned because it is “coming soon.” If the demographic pattern is similar to the pattern that developed when the housing bubble popped, Denver’s market was hit earlier than most of the other top-20 MSAs, the what is occurring in Denver with regard to an inventory pile-up will soon be all over the country.
The headline numbers and the data referenced by the NAR’s chief “economist” are “seasonally adjusted” and converted into an annualized rate of sales. Any distortions in the data are exacerbated by when monthly data is converted into an annualized rate. But let’s take a peek at the “unadjusted” data as reported by the NAR.
On an unadjusted basis, existing homes sales dropped 8.3% from July. YTD there were 3.55 million homes sold. Compare this to the 5.3 million “adjusted, annualized rate.” In order to cleanse “seasonality” out of the unadjusted monthly comparison, I looked at what happened from July to August in 2014. Last year for the two month period home sales fell 3% on an unadjusted basis month to month. In other words, the month to month drop this year is quite bit worse than it appears in the headlines. The months’ supply at the end of August 2014 was 5.6. Just for the record, in 2013 unadjusted sales from July to August were flat, declining by 1,000 homes.
Perhaps most interesting is the fact that the annualized, adjusted sales rate in August 2015 was 5.2% below the same number that was reported in 2013. Interesting that Larry Yun leaves that comparison out of his pathetic apology for a housing market report that was likely even much worse than was featured by the headline-regurgitating mainstream media.
Unlike Larry Yun, who seemed to make shameless love to the numbers, the stock market apparently hated the existing home sales report. On a day when the S&P 500 closed up almost 9 points, the homebuilder index fell 1.3%:
The homebuilders popped at the open on the heels of Lennar’s Q3 earnings report, which was mostly hype backed by little substance. The homebuilder index dropped a bit on the horrific existing home sales reports but remained in positive territory. It would appear that it took the smart money about 90 minutes to analyze and absorb the sales report, because around 11:30 EST, the homebuilders fell of cliff.
I’m expecting home sales to drop at a faster rate going forward for several fundamental economic reasons. I’ll have a lot more analysis and commentary on this later this week.