Friday, May 26, 2006

April Market Wrap

April numbers came out this week from both the Warren Group (covered here in the Globe and here in the Herald) and the MAR (here). Given the historical numbers available from MAR, I'll continue to post updates based on their market stats.

The biggest surprise was the drop in sales from both last year and, shockingly, from last month. Typically sales rise throughout the spring, but that pattern was disrupted this year. SFH sales dropped 10% from last year and 5% from last month. Condo sales dropped 10% from last year and 3% from last month. The drop in condo sales is especially unexpected, given the strength in condo sales until now.

SFH prices recovered somewhat, and were basically flat from last year (up 0.3%).

Condo prices took it on the chin, and were down 2.5% compared to last year. The first drop in 88 months. The condo price chart is suddenly exhbiting an ominous trend.

The unsold inventory of SFHs continues to surge...

While condo inventories continue to build at an accelerating rate.

Below I've plotted the Months Inventory of combined SFHs and Condos to give a unified picture of the market's current state. Keep in mind MAR puts a balanced market at ~7.5-8.5 months inventory.

To put the surging inventory levels into historical perspective, here's the yearly appreciation rates and inventory for the last 15 years. Notably, inventory levels above 12 months have historically been associated with declining prices.


RealEstateCafe said...

Love your work, but am confused by the last graph in this series. Can you elaborate on what it means from a buyer's perspective?

DT said...

Here's what I think it means:
1. Real estate cycles are long. We saw decreasing inventory levels for a decade 1991-2000, followed by a broad trough 2000-04, and now inventory levels are rising dramatically. These sorts of market shifts don't reverse on a short time scale.
2. In general, changes in housing prices inversely track inventory: when supply is tight (low inventory) prices rise, when inventory is high, prices flatten or drop. Now that supply is surging, we are at inventory levels (~12-13 months) that in the past have meant lower prices. So far I think that is just beginning to show up in the monthly and quarterly numbers.

walthamite said...

Thanks greatly for the excellent blog. I too am mildly confused by the last graph though. Perhaps it would help to plot the current supply for 2006. Otherwise it looks as though the market is still in the trough.

The sad part is that if you need to buy a home, you're probably screwed. Prices won't fall much, but your home investment won't appreciate any either. It could take years for wages to catch up with current prices and lead to real price increases. And at the same time, interest rates will likely rise. Damed if you do, damed if you don't.

I already own, so its not an issue for me. But its an interesting thought process to decide if I'd buy right now...

RealEstateCafe said...

Thanks, DT. I was confused by the same thing, then I realized you are talking about annual stats, not monthly tallies of current supply as Waltamite writes.

What is really revealing is if you look beyond the aggregate numbers to local inventory levels vs local sales. A couple of months ago, we looked at:

Current supply
Current sales

in different price segments, and product types, and the inventory of unsold listings was often higher than the statewide figure MAR provided.

So, aggregates and median prices don't give a complete insight into market dynamics. We're working on some new research that should give the kind of detail that people thinking of buying will want to consult before making an offer.

Wish I could say more, should be able to by the end of the week. If you or readers are interested, some of us will be talking about this at BarCampBoston, June 3-4. More detail forthcoming on our blog.

willydog66 said...

my gut instinct tells me it's going to take a good 3-5% pop in current listing prices to get the log jam moving again. That means your typical overpriced 400K listing should have a price drop of 12k-20k on the listing. At this point, I think it's healthy for the market to relieve some of the backlog so people can trade up. Sellers have to be realistic. We all know the "worst case" scenerios and where the trend may be heading. I'm saying short term if the sellers just friggin do *something* to stimulate activity. It's a forgone conclusion that this will ultimately happen. My big concern is that after the next 3-5% relief rally on the downside, what happens next?

willydog66 said...

And I forgot to mention. You thought April's numbers were bad? May was/is *PATHETIC*. Little to no UAG activity on all areas that I watch. So like I said, smart sellers are doing a 3% PCG now to get ahead of the rest of the pack.

willydog66 said...

I think what you had were the very strong buyers getting shook out in March. The moderately strong buyers in April. What's left is slim pickins. The pshchology has changed, and if I'm a seller, I'm agreeing with the OP that I'm undercutting the competition. What is 5K-10K to get rid of the place?

indigo said...

Thanks again DT for some great data.
1. Could you add an estimate of the 2006 data in the last months-of-inventory plot (e.g. and average of the Jan-April data)? This should verify the correlation you are exploring (without waiting until next year for the '06 data).
2. Is there a source of earlier data? It would be very interesting to see the extent by which the price drops lagged the inventory increase in the late 80's. You have made the point that the RE market is a slow-moving beast. Perhaps we can get a feeling of its inertia and help explain to the efficient-market types that the future is NOT priced into today's housing! Perhaps the web has made the beast a bit lighter?

DT said...


1. My next post will estimate 2006 inventory based on the data so far this year. I did this a couple months back, and will update with the latest numbers.

2. MAR doesn't post data from before 1990, so I'll have to look elsewhere. Problem is, I can find historical prices (OFHEO) but not statewide inventories of properties for sale.