Demand for housing in February shocked to the downside. Existing home sales fell 7.1% led by single family. Median prices fell 1.4%.
Data was so bad the National Association of Real Estate cheerleaders showed concern.
The Bloomberg Econoday Consensus was for 5.305 million sales at a seasonally adjusted annualized rate in a range of 5.200 million to 5.550 million sales. The headline number came in at 5/080 million.
Highlights
Housing demand continues to soften with existing home sales down a surprising 7.1 percent in February to a 5.080 million annualized rate. This is much lower than expected and well below Econoday’s low estimate for 5.200 million and is the second lowest rate since February last year. The report is weak throughout with single-family sales down 7.2 percent, at 4.510 million, and condos down 6.6 percent at 570,000. All regions show declines in the month.
Another month of price concession did not boost sales with the median down 1.4 percent at $210,800 for the lowest reading since, once again, February last year. Year-on-year, the median is up 4.4 percent which is above the year-on-year sales rate of plus 2.2 percent, an imbalance that hints at further price concessions ahead.
One factor holding down sales, and which reflects the low price levels, has been a lack of available homes on the market which, however, moved 3.3 percent higher in the month to 1.880 million. But this is still down 1.1 percent year-on-year. Supply relative to sales, given the drop in sales and the rise in supply, rose to 4.4 months from 4.0 months. This, however, is still very low and compares with 4.6 months this time last year.
The weakness in this report, described as “meaningful” by the usually upbeat National Association of Realtors, is substantial and, like last week’s drop in housing permits, represents a downgrade for housing, a sector that was supposed to be a leader of the 2016 economy. New home sales will be posted on Wednesday.
Recent History
Existing home sales have been solid but haven’t been accelerating, basically holding at a mid-to-low 5 million unit annual rate for the last year. In one sign of strength, single-home sales have been accelerating relative to condo sales which hints at strength for household wealth. Prices have been rising but less so than sales which points to discounting. And prices haven’t been high enough to bring homes into the market as available supply remains very low. Forecasters see existing home sales coming in at a 5.305 million annualized rate in February, down noticeably from January’s 5.470 million.
Let’s investigate the claim of “solid but not accelerating” home sales.
Solid Sales?
Averaging things outs, we clearly see sales accelerated from February of 2015 through June of 2015. Since then, sales have decelerated.
Mortgage Rule Bounce Over
The sudden plunge in November sales (released December) was due to change in disclosure rules called “Know Before You Owe“.
The bounce in December and January sales was most likely due to delayed closings in November and December. That bounce is now over.
“Know Before You Owe” kinks have been worked out.
The “surprise” downtrend continues.
Mike “Mish” Shedlock
I have noticed by following Zillow listings in my city that prices for used homes have been revised downward on a lot of new listings. What is puzzling is that new home prices are excessively high while existing home prices are soft. I don’t know how well new homes are selling in my area but the high new home prices should push more people into used homes but prices aren’t reflecting this.
That is definitely the case here where I live in FL. Resales are selling at a mere fraction (in many cases less than 1/2) of what the cost to build today would be. One big factor, Harold is build quality. It is CRAP today and has been for quite a while. In the community where I live, almost all the homes built before 1995 have already had to have their roofs replaced. That is a $25,000+ expense. Air conditioning systems here in FL now last about 8 years – if you’re lucky. My pool/spa heater – which is less than 10 years old – has died and needs to be replaced. That’s almost $4,000, and I’m sure the new one won’t last any longer. At least with a new home you can expect to live for 8-10 years before getting hit with one big repair expense after another.
I was a subcontractor for many Florida builders from 1995-2005 and was one of the rare few who spoke English. Construction quality overall was crap; most materials were Chinese or Mexican made; not made to last. You DO get what you pay for. But the overwhelming issue in the ratio of median home price to median h/h income; currently at about 5:l. Years ago, the rule of thumb was that ( when interest rates were real, obviously) you could afford a home at a price at, or less than 2.5X your gross income. No wonder sales have fallen off a cliff.
It’s a horror show everywhere, aside from the very high end. Think $10+ million in Bel Air and Pac Heights.
The saddest part is, all the asset pumping and financialization, has made it almost impossible to get a mortgage on anything beyond the most minimal “cost per square foot”, as that is how lenders assess “value.” Lots and lots of people are realizing the whole McMansionization of houses does nothing more than build in insanely high upkeep and utility costs, but the “cost per square foot” tyranny, and idiotic “land values” and zoning/”land use” laws prevents them from focusing more on quality.
The same “land use”/zoning laws are sticking young people with unaffordable mortgages for absolute junk piles passed of as “condos” as well. In a free market, as in, build what you feel like where and when you feel like it, you have to provide some value for the money, or buyers go next door. But, just as in every other area of this once kind-of-free country, the government and lawyers, both hired by the already wealthy, are blocking that. So housing is kept artificially limited, in order to prop up the paper wealth of those who already got theirs. While young people looking for something as basic as a roof over their head, is forced to pay 10x what the construction cost of the place would be in a free market. 90% of which is pure, government mandated rent.
This is my 1st Mish Report since you switched websites. However, don’t really care for this Format; the other was much better — easier to read; didn’t need to click over to another website; seems less user friendly, etc.
FYI: Just signed up w/ new service b/c received e-mail from you this morning announcing link where to sign up Had w/ you a couple years at old website. Unfortunately, that was not even a smooth transfer over!
Jack
New format the overwhelming favorite by 80% of people emailing.
This came in from reader Ian just a couple days ago.
“Your new site is clean and uncluttered. I like the capsule descriptions. You have always had wonderfully descriptive headings that allow me to decide whether I want to read more. Not everything you publish interests me and some things that do i don’t always have time to read. Your headings provide enough information allowing me to decide how to respond. The other site i follow throughout the day – Zero Hedge – has so much aggressive and intrusive advertising that it actually impacts the performance of my old PC running Firefox. Yours doesn’t have this. Good design and good document structuring.”
In general, that is how most responded. One person hates my new Fonts. Others like them. Impossible to please everyone. But I am pleased with the more professional looking layout as are most.
Mish
Mish, I have to agree with Jack1. Maybe its because I read a LOT of blogs and look for a lot of information at once to decide where to jump next in the time I have. I MUCH preferred the old format. While this is simpler, it’s a little too simple unless you are only reading it on a phone screen. It’s like the difference between having a dashboard where you see only your speed limit or a dashboard where you can see speed limit, how much gas you have, how many miles have you gone, what is the engine temperature, is the battery charging, etc. The first is fine for basic driving but the latter is a whole lot better if you drive a LOT. Sorry if that’s the best analogy I can give. Too, more and more I’m looking at this through a table (screen). This is really more of a mobile format which is usually much more sparse where you are trying to give the 20% of the real estate that provides 80% of the information.
“One factor holding down sales, and which reflects the low price levels, has been a lack of available homes on the market” – I find this comment particularly amusing. I guess the laws of supply and demand as normally understood no longer apply where used houses are concerned. In other words, somehow a shortage of housing supply has lead to a drop in prices. Priceless.
Yes, I have mocked that Bloomberg comment before
Mish
My kids are 28. 30. Withwifes we try to give them the house Mike they dont wont the headache they rather just pay us rent they don’t want to taxes they don’t want the maintenance of the house they just want to come and go so like I said we try to give them the house for free they said the house is too much to take care they don’t want to know if every child between 28 and 30 is thinking like this I think the housing market is going to crash more
The problem centers around the affordability of homes, or lack of it to be precise. Nobody in the industry wants to admit the truth, because the truth doesn’t move inventory. Homes are too damn expensive, especially when your local CAD (central appraisal district) wants to tax the Hell out of them. Here in Houston Texas, things have gotten ugly. We have budget revenues about to roll over, and yet the local CAD’s are getting ready to tap homeowners for even more property taxes in 2016. The whole “affordability” argument is a work of fiction…
http://aaronlayman.com/2016/03/nar-home-sales-fizzle-in-february-as-affordability-evaporates/
I agree that your new site and format are better. I miss your long articles but your are making that up with more frequent postings. Please ignore the minority that don’t recognize the value in a service for which they don’t pay
Ignore no . Feedback and opinion is valuable as long as it is constructive , and I think Mish would be the first to recognize that . Mish decides on the choice of presentation that suits him based on whatever criteria he feels are most important though , and there is no need for him to get too tangled about every comment made .
I took a somewhat disappointing bid on my house and closed this past January, a decision largely taken due to my following Mish’s reports. It’s looking like I did something very smart, as I would not wish to still be holding that bag.
Seattle is a zoo! If you want to live in debt prison come to Seattle and participate in our daily episodes of outbidding one and other… We’re all gonna be rich, rich, rich I tell ya!
I and my family have been onthje lookout for a different home, out of the city with a bit of acreage (1-5; more if the price is low enough). For us, the range is 75k to 150k and that topout would be a strain. That said, all we’ve found is below that range falling apart and unliveable, or waaayyy past that range in the 300k and is far more than we would want to maintain. There is little in between, that is affordable, for a family of four these days.
PLEASE SIGN ME UP FOR YOUR BLOG..MISH………………….THANK YOU KINDLY…CHET FOXX
________________________________
Hi Arnold
Rules of the game: I cannot sign up anyone.
Just click in the signup box upper left of the blog
Mish
Well, this bull housing market couldn’t last forever, could it?
Things are just rosy in Seattle.
NWMLS: Prices Surging, Listing Shortage Drags On
http://seattlebubble.com/blog/2016/03/08/nwmls-prices-surging-listing-shortage-drags/
A lot of people are going to be disappointed when the price of their home loses value because of local officials, appraisers, builders, and banks have colluded to increase the price of single family dwellings in their local community’s. The newest fad tiny houses selling in some areas like Portland, OR and Austin, TX selling for 200k to 350k. I used to build housing and at most including labor they may have 30k in one depending on size. Quite honestly placing a 225 square foot shed on a lot does not mean they are worth that kind of money and suckers buy these things.
I watched a couple buy a home in Portland, OR that was 225 sq ft for 225k, another couple bought a 425 sq ft home in Austin TX for 300k honestly someone should be headed to jail. I wonder how the banks even make the loan to these suckers. There is no way a shed will appraise for that type of money even with the land. I built my woodshop which is 440 sq ft for 6k in material and it is built better then most homes these days. I guess shed living is the new norm.
Some states now count porches and garages as square footage when selling a home. This is not the norm as unheated space is not counted when selling a home with the exception of total square footage. Ahh hew the rules change to entice dumb buyers (suckers).
In Austin a dog house sells for 200K. It’s ridiculous. Prices down the road in San Antonio are easily a third less than Austin but there is very little supply. In my neighborhood most new listings sell within a week or two and in my condo complex there is one unit for sale where normally there are about four or five. Very tight market.
In my city of 150K we have hundreds of houses with underwater mortgages. A house 2 doors from mine was sold in 2008 for $161,500, the owner lost her job and took a walk. It was bought in 2013 for $73,000. Another neighbor, an agent for over three decades and former president of the state real estate board, told me the median price is up because those with cash can get great deals to build. Contractors trying to stay in business.
This neighbor just merged with another RE company to try to stay afloat.
Do we need to ask if those who paint a rosy picture ever take look at such evidence?
Home sales are accelerating,the acceleration is just negative.
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