In With the Old, Out With the New?
“Existing Home Sales in 2007 Expected to Recover from Cyclical Low”
That’s the headline today from the National Association of Realtors in their monthly Housing and Economic Forecast. And you might as well put an exclamation point on the end of that. You see, the NAR, the largest trade organization in the US, represents more than one million real estate agents in the U.S. and abroad; as sales slump, so too do Realtor commissions. Unfortunately for the NAR, they themselves are the most reliable source of sales and pricing numbers, so while they have to report the bad, they are all but forced to do so with a dose of good.
Take today’s report:
“Existing-home sales are expected to rise gradually in 2007 from current levels, with annual totals comparable to 2006, while new-home sales will continue to slide.”
NAR’s Chief Economist, David Lereah: “Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year. Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards.”
This is precisely why I choose not to report this particular monthly release on TV. I often just don’t get it. Last month the market saw the biggest drop in existing home prices year-over-year ever. That, combined with a drop in interest rates, managed to force the monthly sales number up a half percent, the first increase since February. But does that mean the market has hit bottom? And doesn’t it all depend on which existing home you happen to be sitting in?
“Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year - prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market,” Lereah continues, “This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gain.”
What does that mean? Prices are still in the positive, but not as great as they were during the boom, so that means that buyers think they’re getting a good deal, and sellers are still getting something??? Enough of the win win.
Real estate is all about location and emotion. Most of us have been through the grueling process of negotiating a real estate deal, and we all know that it’s 50% local stats and comps and 50% mental mishegas (Yid: craziness).
At the height of the slump (can I say that?) last summer, a house around the corner from me sold for 20% over the asking price. The house was cute, I’ll give you that, but not that cute. While other houses in the neighborhood sat for weeks, this one had something about it, some kind of draw. I spoke with a few neighborhood realtors and they shook their collective heads.
“Sometimes a house just shows really well,” said one.
“This was a sweet house,” said another.
All agreed it was not under-priced to begin with; it just hit an emotional chord and caused a bidding war right in the middle of a housing correction.
I believe in inventories, that is, the number of houses on the market at any given time. Inventories quantify the competition and set the financial and emotional mood in the neighborhood. Inventories nationwide are still 51% higher than they were a year ago.
So are we en route to a recovery in the real estate market? Well, I would ask, which market? Which neighborhood? Which house? And how cute is it?
Questions? Comments? RealtyCheck@cnbc.com