Housing Inventory Build Worsens

Last week, we noted that the Housing Freefall Continues Unabated. Conversations with Real Estate Agents prior to the NYT story anticipated that column’s thesis that this has been one of the worst Springs — the peak real estate selling season — in decades.

The net result of this is that the inventory of unsold homes continues to build, taking the housing mess further away from its final resolution.

Today’s WSJ has the details: 

"Growing inventories of unsold homes continue to weigh on the U.S.
housing market, portending more downward pressure on prices, the latest
data show.

The number of homes listed for sale in 18 major U.S.
metropolitan areas at the end of May was up 5.1% from April, according
to figures compiled by ZipRealty Inc., a national real-estate
brokerage firm based in Emeryville, Calif. The data cover all listings
of single-family homes, condos and town houses on local
multiple-listing services in those areas.

The sizable increase is notable because, on a national
basis, inventories of listed homes have typically been little changed
in May during the past two decades, according to Credit Suisse Group. May is one of the peak home-selling months because families with children often aim to move during the summer vacation.

Some of the biggest inventory increases last month
came in the metro areas of Seattle, up 12% from April; San Francisco,
11%; Los Angeles, 10%; and Washington, D.C., 9%.

Inventories also are up sharply from a year earlier.
For the 15 cities for which year-earlier comparisons were available,
combined inventory was up 29% from May 2006."

As inventory continues to build, the effect on prices is inevitable. Even in the face of steady demand, economics 101 is that prices will fall. However, we seem to have diminishing  demand, even as inventory ramps higher. That’s a formula for prices that will fall more than just modestly.

As we noted way back in 2005, a 20 – 30% drop from the peak is hardly unthinkable.

Home_sale_price_reductionsThe impact of this is already showing up in various consumer sectors

And yet, some fools continue to insist that the housing slowdown is having zero impact on the broader economy. The best response to that silliness comes from Raymond James’ chief strategist, Jeff Saut:

"Now for those pundits that insist that real estate is not spilling over into the real economy, we ask the question, “Why has the Association of Home Appliance Manufacturers’ Index posted a roughly 10% decline in shipments?”

Or, “Why is Circuit City laying off 3,400 of its best sales personnel and attempting to hire maladroit sales people at a much reduced compensation package?”

Similarly, “Why is Citigroup cutting 15,000 financial-related jobs?” And, “Why is GMAC stating that its Residential Capital subsidiary is going to hurt profits?”

Inquiring minds want to know such things.

Moreover, if the problems in sub-prime mortgages are NOT spreading, why are sub-prime mortgage companies dropping like flies, why are companies like ACC Capital closing their “call centers,” and why are delinquencies rising not only in the Alt-A complex, but in prime portfolios as well?”  (emphasis added)

The answers to these queries are rather obvious: Housing is impacting the rest of the economy in a significant AND ongoing manner.

Further, its no coincidence that 1) housing prices are falling; 2) Mortgage Equity Withdrawals (MEW) are contracting; 3) Retail sales have softened notably.

Indeed, the broader risk to the economy is the impact of the real estate price declines on consumer sentiment. MEW has already declined from over $844 billion to well under $400 billion over the past 2 1/2 years. We still have the upcoming adjustable mortgages resets — and at considerably higher interest rates.

The final chapter in the impact of Real Estate on the broader economy has yet to be written . . .


There’s a full interactive graphic at the public section of WSJ online.
click for full chart


Graphic  courtesy of WSJ online



Rise in Home Inventory Continues to Hurt Prices
WSJ, June 6, 2007; Page D3

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