Monday, July 27, 2009

Why the new home sales numbers dont mean jack

Analysts are all excited about the new housing numbers - unfortunately they don't mean anything positive for the market. Let's break this down.

1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.

This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.

2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.

3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.

4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.

5. Still have an 8.8 months supply of inventory in a conservative measure.

6. Single family home sales are 21.3% lower than this time LAST year!

7. The homes sold during spring buying season close usually May-June, so this is to be expected...

8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.

9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)

10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.

No comments: