National Association of Realtors® says Existing-Home Sales to Trend Up in 2008.

Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors®. However, a recovery for new-home sales is unlikely before 2009.

Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

My Comment: It is incredulous to suggest that the worst part of the credit crunch is over. The wave of Alt-A and Pay Option ARM problems will not peak until 2011 See When Will Housing Bottom? and Housing – The Worst Is Yet To Come for charts depicting a possible bottom.

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.

“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.

“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”

My Comment: This is a complete distortion of what’s happening. Median prices are rising in some areas as the mid to low end has dried up. However, most of the major markets (where people actually live) are getting hit hard. See charts of the Shiller Index below.

Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.

Pent-Up Demand or Pent-Up Supply?

If builders have correctly adjusted production, why is the inventory of homes soaring? Professor Kevin Depew was talking about inventory in point number 2 Pending Home Sales of today’s Five Things.

Lawrence Yun, chief economist for the NAR, said he believes existing home sales will gradually rise over the next year as “pent up demand” is unleashed.

In the meantime, while Mr. Yun awaits the unleashing of “pent up demand,” we’ll continue to follow the “pent up supply” of housing that is being relentlessly unleashed.

Shiller Home Price Index

click on chart for sharper image

As the above chart shows, the 10-city composite, the 20-city composite and the national composite are all solidly negative for the year. The declines are even worse than shown because they only include repeat sales. Declines in new home prices and builder incentives are not factored in.

Comments From Shiller

The chart above, depicting the annual returns of the U.S. National Home Price Index, the 10-City Composite, and the 20-City Composite shows all three still yielding negative returns as of September 2007. The quarterly S&P;/Case-Shiller® U.S. National Home Price Index — which covers all nine U.S. census divisions — was down 1.7% from Q2 2007 and down 4.5% from Q3 2006.

“The declines in the national figure are notable for two reasons,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “First, the 3rd quarter decline, at 1.7%, was the largest quarterly decline in the index’s 21-year history. And, second, the year-over-year decline posted its second consecutive record low at -4.5%. Consistent with prior 2007 reports, there is no real positive news in today’s data. Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis.

All 20 metro areas were in decline in September over August. Even the five metro areas that still have positive annual growth rates — Atlanta, Charlotte, Dallas, Portland and Seattle — show continued deceleration in returns.”

While Tampa remains the metro area with the largest annual decline, at -11.1%, Miami surpassed Detroit in September, reporting a decline of 10% over the past 12 months. Detroit and San Diego followed with -9.6% each. While the mix is slightly different, once again eight of the 20 metro areas reported their lowest recorded annual returns – these cities are Atlanta, Chicago, Las Vegas, Miami, Minneapolis, Phoenix, San Diego, Tampa, & Washington D.C.

Shiller 20-City Index

click on chart for sharper image

To understand how understated the Shiller index is, ask anyone in Tampa or Miami who bought in 2005 or 2006 and are now looking to sell if they will take 10% less than they paid for it. I suspect most would be thanking their lucky stars for the chance.

The fact of the matter is housing exploded up in Florida and is now back to 2002-2003 prices. The Shiller Index hugely understated the price increases during the blowoff top and is now hugely understating the declines.

Builder discounts are now 30% or more on the same models as last year plus increased incentives but those prices are not factored into the Shiller Index. Condos are down 40% or more at auctions. Florida and California are both way lower than the index shows.

All things considered this was yet another fantasyland call from the NAR.

Mike “Mish” Shedlock
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