Back on Thursday, we noted that new home sales picked up in April in response to dramatically lower prices (the April median price fell 10.9 percent from a year earlier). Then on Friday, the National Association of Realtors reported that sales of existing homes fell to the slowest pace since 2003.
Here are three key paragraphs from Sudeep Reddy's summary piece in the weekend Journal:
The 2.6% decline from March, to a seasonally adjusted annual rate of 5.99 million homes, followed a revised 7.9% drop in March. April's sales rate was down 10.7% from a year earlier, figured from the National Association of Realtors showed.
The number of existing homes for sale jumped 10.4% at the end of April to 4.2 million, equal to 8.4 months' worth of sales at the current selling rate, up from 7.4 months in March. The unsold properties relative to sales hit a 15-year high.
The median home price in April of $220,900 was just 0.8% below the year-earlier level. The media price can be misleading because the mix of sales between higher- and lower-priced homes changes. Lately, there may have been fewer sales of cheaper homes because of the huge drop in subprime lending. That would tend to skew the media higher, suggesting home prices may actually be declining more than the reported median suggests.
The most telling fact: bloated inventories, which go straight to the heart of supply and demand in the real estate market. Sellers will have to adjust to this environment by waiting patiently, reducing prices, or taking their properties off the market.
Monthly real estate data (especially on new home activity) are notoriously volatile and thus subject to significant amendment. But the overall picture in real estate is clear. There's a big overhang in excess inventory, and the unwinding of the housing market isn't anywhere near finished.
All of which--especially in the face of spiking gas prices--makes today's consumer confidence number all the more remarkable. It seems the American consumer is as close to an unstoppable force as we can find in the economic realm.
UPDATE: Barry Ritholtz draws our attention to a Bloomberg story on just how deep and lasting the pullback in residential construction might turn out to be. Here are the key passages:
New home construction in the U.S. may take until 2011 to return to last year's level, said David Seiders, chief economist for the National Association of Home Builders in Washington.
Monthly construction starts would need to jump by 21 percent to reach Seiders's benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.
"We've fallen way below trend because we soared way above trend during boom times,'' Seiders said in an interview. "The upswing will be relatively slow, unlike earlier cycles.''
The inventory of unsold homes is the largest since the Chicago-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors' group. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009.
Sources
Sudeep Reddy, "Home Prices Could Soften as Sales Decline," Wall Street Journal, May 26-27, 2007 (subscription required)
"Consumer mood rises, as does inflation fear," Reuters, May 29, 2007
Bob Ivry and Brian Louis, "U.S. Home Construction Bust May Last Until 2011," Bloomberg, May 29, 2007