Tuesday, February 28, 2006

January Market Wrap

MAR released their January sales report today. Here are the latest SFH numbers plotted to show their relationship to recent trends over the past few years.


Here are the latest price and inventory data for Condos.


So far it hasn't made the headlines that I've seen, but prices are DOWN (albeit slightly) year over year for SFHs. This breaks a string of 115 consecutive months of positive appreciation.

And inventory numbers continue to accelerate to the upside - looks like I'll need to expand the y-axis for these plots by summer.

Money quote from MAR press release:

"...sales of detached single-family homes fell to their lowest January level in 10 years..."

Spin from the MAR Talking Points:

"False assertions of a price bubble in the local market also have prompted some buyers to delay their home buying decision in anticipation of sharply lower prices come this spring."

"Inventory, as stated in months of supply also rose steadily from 8.2 months last January to 14.3 months of supply in January 2006... In Massachusetts, the market is at equilibrium for buyers and sellers when 7.5-8.5 months of housing supply exists, thus despite concerns about an inventory glut, there’s a healthy balance between supply and demand at the present time."

As noticed by a reader, the statement above has been edited by MAR. The new text is shown below, and now reflects a more "reality-based" assessment of the market:
"In Massachusetts, the market is at equilibrium for buyers and sellers when 7.5-8.5 months of housing supply exists, thus a strong buyers market emerged has emerged over the past month due to surging supply levels and more moderate demand."

"The number of condos for sale has increased 47.8 percent in the past year... Inventory, as stated in months of supply, also has risen in the past year, climbing to 13.7 months of supply
this past January from 9.5 months of supply in January 2005."

To see where these "balanced" inventory numbers will likely be sending prices, check out my recent post.

But in case anyone might be worried about the market, MAR is here to reassure you:

"Predictions of steep price declines in home values made this past fall remain largely unfounded."

How about long, slow grinding declines in home values for years to come? All the pieces are in place: exploding inventory, record low affordability, net out-migration, stagnant job growth and wages, uptrending foreclosures, payment shock from resetting mortgages. The only questions now seem to be: How fast, and how far down?

28 comments:

RealEstateCafe said...

Greetings fellow Boston Bubble Blogger. Thanks for posting your take on MAR's latest stats so quickly, and impressive, clear graphs as in the past. Some of the people, including a couple other bubble bloggers commented on some of your past posts, and I did my best to try to address their questions. Please feel free to join us in the future, and hope you and your readers can access the transcript from our chats today online at: http://tinyurl.com/jmhtp

We're eager watching to see how the growing inventory of unsold home translates into price reductions this downcycle. Thanks for your scatterplot diagram on past trends, and be sure to check out our analysis of current inventory levels by price range.

Rob Dawg said...

You are gonna need bigger graphs for the inventory in the next few months. Good job, thanks.

Pinch a Penny said...

Cool. I have never heard of a 14 month inventory as being balanced. Where on earth, or for that matter, this plane of existence are the realtors living in?
Excellent Graphs. I love the arrows for 06 that point at the level of inventory. Excellent work!

Rob Dawg said...

Remember "inventory" assumes no new properties come on durring the period. It heterodynes (feeds on itself) during slowdowns. In a stable market 1yr inventory implies that some properties can expect to take two years to sell. That's a broken market. We aren't even close to stable yet. We won't see more homes sold than placed on market for years but it won't be obvious as listings are withdrawn, etc.

MA Market Watcher said...

Good work. With regards to the "healthy balance" of 14+ months of inventory, did the MAR change their press release? The current version reads:

"Inventory, as stated in months of supply also rose steadily from 8.2 months last January to 14.3 months of supply in January 2006.... In Massachusetts, the market is at equilibrium for buyers and sellers when 7.5-8.5 months of housing supply exists, thus a strong buyers market emerged has emerged over the past month due to surging supply levels and more moderate demand."

At least they are acknowledging a strong buyers market. I agree that we are likely to see a long slow decline in prices over many years for SFH's. The unknown factor here which could accelerate the decline, is how many people will be able to afford their interest rate reset on their ARM or IO loan?

Condo's which have had far more investor interest could take a quick decline as they try to cash out. Even allowing for a 20% down payment, condo prices have outstripped rents for at least 3 years in most areas. In addition a lot of investors take ARM or IO loans as they don't intend to hold the property all that long.

Pinch a Penny said...

I was watching CNBC today and they had a segment about real estate. They of course interviewed a couple of RE agents, and they said that everything was going fine, that it was obvious that prices could not keep on increasing, other wise they would run out of buyers....
The long and short was not too expect any price reductions any time soon, as sheeple will not sell below what their neighbours just sold. That they will protect their equity.
As a prospective buyer I am going to go on a limb and let any potential SELLER the following:
1. I will look in Zillow.com for the price that YOU the seller paid in 1996, and I am going to OFFER the same amount.
2. I will need you to come to my new property on weekends to mow my lawn and feed the wildlife.
3. You will have to write an essay about how you deserve to get off the hook for all the dumb financial decisions of the past 10 years.

DT said...

Thanks for all the positive feedback, and a special thanks to ma market watcher for catching the edited text on the MAR Talking Points. I've added the new text to the post.

bostonbubble said...

Quote: So far it hasn't made the headlines that I've seen, but prices are DOWN (albeit slightly) year over year for SFHs. This breaks a string of 115 consecutive months of positive appreciation.

Maybe the drop wasn't so slight if you consider inflation. Based on to the Bureau of Labor Statistics' data at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt , it looks to me like inflation from January 2005 to January 2006 was 3.99%. Given a nominal decline in the median price from $346,000 to $345,500, that translates to a real decline of 3.97%, if I did the math correctly.

willydog66 said...

Santa is coming a little early. 14 mo. inventory LOL! It was inevitable, it really was. The second rate hike the fed makes after this one should start taking out the shorts. If you can hold out into '07, you'll be in prime time.

Pinch a Penny said...

Boston: I think the total price reduction would be CPI + Price Reduction, or -3.99 +(-.01) for a total of -4 % a year.

DT said...

Agreed, when you factor in inflation the market is already in decline. Not sure that makes much of an impact on the average person (though it probably should).

But if you're on the sidelines saving money and waiting to buy, it is a nice contrast to the many, many years of falling behind while appreciation outstripped any attempt at saving.

willydog66 said...

The most interesting thing in my eyes is the spike in inventory. If you can extrapoloate the graph, it's almost a vertical leap. Should be interesting to watch inventory levels over the spring-summer, as the market will shake out the sellers who aren't really serious.

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