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March New Home Sales Deceptive

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Joined: 02 Aug 2005
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PostPosted: Wed Apr 26, 2006 10:32 pm GMT    Post subject: March New Home Sales Deceptive Reply with quote

March's New Home Sales increased to an annual rate of 1.213 million from February's 1.066 annual rate. This 14% increase largely offsets the 16% decline over the previous 2 months. However, March's rate is still 13% below July's peak of 1.371 million/year. It still marks a decline in the annual sales rate from the end of last year when it was 1.266 million/year.

New Home prices also declined. The current annual price change is -2.2%. New Home inventories declined to 5.5 months worth from February's peak of 6.3 months worth. However, there is still an over trend towards increasing inventories. March inventories are still higher than January's 5.3 months worth, December's 4.8 months, November's 4.9 months, and October's 4.5 months.

It does appear that the steady decline in New Home Sales took a break this month. However declines, however, have continued uninterrupted. March's annual price appreciation rate was -2.2%, down from +1.1% in February, and down from +7.4% in January.

However, the published numbers for March are deceptive. Further review of the New Home Sales numbers are far less optimistic. March's New Home Completions totaled 185,000. March's Housing Starts totaled 163,000. Total New Home Sales were only 119,000. Thus the supply is still increasing faster than the demand. In fact, the supply of New Homes available increased 66,000 more than the number sold in March. The future supply, indicated by Housing Starts, increased 44,000 more than homes sold. As predicted from an increase in supply greater demand, prices declined 2.2% year-over-year.



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The economy needs balance between the "means of production" & "means of consumption."
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PostPosted: Wed Apr 26, 2006 11:10 pm GMT    Post subject: Number Source Reply with quote

Some of the numbers in the previous post are based on preliminary estimates from the U.S. Census Bureau. For example, The 119,000 New Home Sales appears to be an overestimate. Dividing the annualized March increase of 1.213 million gives a total of only 101,000 for March. This latter number is probably more accurate, but cannot be directly documented from the Census Bureau link. In addition, the Census Bureau report states "Detail man not add to total beause of rounding." Rounding? Spin is probably more accurate. It's nothing unusual for the Bush administration's number not to add up.

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john p

Joined: 10 Mar 2006
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PostPosted: Thu Apr 27, 2006 2:53 am GMT    Post subject: seasonal adjujstments Reply with quote

check out the chart about 15 percent down on the scroll bar.

You will see a yearly trend line that has a seasonal yearly trend. Overlaying the two past years indicates the seasonal trend and the current downward trend. The uptick of March indicates that more houses were sold in February or late January than during the holiday season. Stunning??? These next two months will be really telling. Too bad we have to wait a month and a half for data from the MAR. I wonder how frequently the Warren Group puts out their data.

In this mixed market, many different people have such different outlooks about what's going to happen. When the extremes clash it makes for interesting debate. The general consensus is that the market is trending downward. The question is, is this just an adjustment to cover interest premiums or will buyers gain traction in value. The willingness of the sellers to drop their prices answers that. The ones dropping their prices are reaching their goals faster and the ones that don't keep baking cookies for their open houses. Offers of 20 percent and up off are common and enough sellers are biting which encourages buyers to wait to find the right person to deal with.

Seller are holding out for the dumb turkeys that haven't done much research. It seems that lots of current buyers are just following lifestyle changes like wanting to move to a better neighborhood, downsize, upsize etc. and don't want to put their life on hold to wait this out. The line is "You can't time the market". Well if the asset isn't remotely supported by fundamentals, and the contributing factors which have accounted for the price bubble have rapidly reversed direction for some time; you don't have to be Columbo to figure this one out. Other types of buyers, again, seem to be hedging their bets by offering 20 percent and more off of asking price. Many realtors and sellers have actually inflated their prices as high priced "opening moves" as the realtor in the link above indicates. I see homes dropping prices on $10k amount on a monthly basis from this opening move position. I noticed this at the beginning of the year and couldn't believe it. When this realtor wrote about it in his Market Update I felt like I wasn't crazy. Imagine, knowing that prices were dropping, realtors were telling their clients to pad their prices to insulate themselves from the buyers who would automatically low ball. One realtor described the market as "getting back to normal". If this were the case, it would drop over 30 percent in order to be in line with fundamentals. As we get deeper into the sweet spot of the selling season, only the smart sellers will sell and the greedy ones will be stuck without a chair when the music stops. Some houses are droping in price much more rapidly than this. There are more sellers than buyers out there, that is for sure; so if a seller wants to be one of the lucky ones they need to catch the wave of this selling season or pray for a turkey to show up.

Most home owners have a current low cost of capital and would lose a bit when they finance for a new home (which washes away a bit of the equity they may have in their current property). People are not refinancing either because they most likely hold a better rate than the current, so mortgage deals and competition are out there. A wide range of rates serving the savy to the turkey.

The new risk is the straddle. A couple of years ago, one could sell their home in a matter of weeks, so people would feel ok about putting an offer in on a home without selling their own place. Now sellers are nervous about contingencies.

A good selection isn't great in most towns. It's like when you go to Filenes basement and all that is left is the winter clothing lines with the irregular quality and lime green and purple with feaux fur. It's funny how some people really think their home is fabulous. Someone put granite countertops or bamboo flooring in a basement condo next to a crack house and they think they can double their money in a year.

One other interesting trend to follow is this whole thing about splitting commissions between buyers agents and selling agents. It is not always a 50/50 split and the overall percentage seems to be ranging. Everyone is battling. In fact, I have heard that buyers agents will not push a particular property because the seller advertises a low buyers agent concession. They push their buyer into the deal that they get a higher percentage in the split. I wouldn't consider getting a buyers agent unless they could get me 20 percent and up off of asking price, otherwise they aren't earning their keep.

Lastly, it's about forecasting and projecting numbers into the future. People wonder what their salary will be like in five years, what houses will be selling for in five years, if their money will grow faster in the stock market, etc. Three or four years ago, people thought they would make lots of money and their salaries would grow rapidly as they did in the late 90's, they saw house prices skyrocketing so they'd better get in while it was affordable etc. Now, people don't think their salaries will rise as quickly, wonder if their industry is stable, see house prices stagnating or dropping significantly; so it seems that we are going into a period of conservation.

Interesting times....
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