U.S. Home Sales Drop In March

There is a lot of press out there about the national housing market. This article below is from Forbes. Austin has slowed down with respect to number of sales, but prices keep rising in the desirable areas. I cringe when I see local newspaper article headlines “Austin Home Sales Cooling” because that’s a misleading thing to say about the Austin real estate market. I’m going to write an article about what the “number of homes sold” means and what it doesn’t mean in the next couple of days.

U.S. Home Sales Drop In March
Forbes.com – Matthew Kirdahy, 04.24.07

America’s housing market may have hit bottom, but it’s in no rush to climb out of the hole in which it has found itself.

On Tuesday, the National Association of Realtors reported existing home sales for March fell sharply by 8.4%, to 6.12 million units. That was significantly below the Wall Street consensus estimate of a decline to 6.45 million units, down from February’s 6.69 million. The drop was the largest since January 1989.

Investors took the numbers badly, slamming housing stocks. New-home sales, which reflect how the construction companies are doing, were expected to rise to 890,000 in March from 848,000 in February, when the numbers are reported on Wednesday. But with existing home sales weaker than expected, the risk is that the consensus for new units will be too optimistic as well.

Centex Homes was the most notable loser, falling 2.9%, or $1.36, to $44.44 in morning trading. Hovnanian Enterprises shares declined 2.6%, or 64 cents, to $24.31, while KB Home stock lost 1.9%, or 86 cents, to $43.40.

The kneejerk reaction may be too pessimistic. Home sales had gained in four of the five prior months, and the Realtors group blamed the sharp March decline on the last gasp of Old Man Winter — with a little help from the subprime mortgage debacle.

Being real estate agents, however, they found some signs of hope. The group’s chief economist, David Lereah, said in a news release that the decline was “masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers.”

“It’s too early to measure a significant impact from tighter lending standards, which should moderately dampen activity, but we’re still looking for existing-home sales to gradually improve during the last half of 2007.”

The group said the national median existing-home price for all housing types was $217,000 in March, 0.3% below last year’s $217,600.

Ken Mayland, who runs Clearview Economics, said that was a good sign. “Care must be exercised in using these figures, as they can reflect mix changes as opposed to fundamental home values. But this does NOT look like a market whose bottom is falling out. In fact, it looks like we may be getting close to a bottom, which I expect to be shaped like a hockey stick, not V-shaped.”

That would mark a fairly soft landing for the housing industry, which soared as interest rates fell in the early years of this decade. As prices rose, loans became easier to find, fueled by unjudicious lending into the subprime market. Borrowers who were not particularly creditworthy were able to get loans, often with two-year teaser rates that are not beginning to rise to levels that make the loans unaffordable.

As long as the market was rising, borrowers were able to either sell their properties for profits or refinance, but with prices now weak in many markets, defaults are rising. Homeowners who find they cannot pay their mortgages can no longer take larger loans based on the appreciation of their properties — there isn’t any — and with prices actually falling they may not be able to sell their houses profitably. No wonder there are motivated sellers.

At the end of March, there were 3.75 million existing homes available for sale, but that was down 1.6% from February, another sign that the market may be at a bottom.

5 thoughts on “U.S. Home Sales Drop In March”

  1. I think the explanation for the fact that Austin’s numbers are down, but desirable areas
    have appreciated is the subprime loan markets’ tightening of standards. Those just
    on the margins of qualifying, with little or no down payment, have been shut out
    per new mandates. That narrows out the bottom of the market. The mid and high
    end obviously hasn’t been affected per the new guidelines, and the influx of new residents
    and employers has ensured a steady supply of buyers for the same. There also remains
    a steady flow of investors willing to buy up high priced condos and rehabs in the environs
    of downtown north to 45th or so, south congress ramparts, and some east of I-35
    near downtown. This is a static picture, however. A dynamic one would take into account
    the bubbling up of the slowing first-time homebuyers, who will inevitably put a monkey
    wrench in the plans of rehabbers and sellers higher-up in the food chain. I would hope
    otherwise, but real estate being a largely bottom-up phenomenon, Austin is subject
    to the same flows the rest of the country has experienced/are experiencing. The only
    difference is that Austin real estate was not overly inflated to begin with, and the local economy is at the crest of its business cycle, from the low of 2001. The Austin American-
    Statesman article per the plummet in tech start-up investing apr. 24 may be a clue that
    that crest may be ebbing somewhat the remainder of this year.

  2. Number of people who jumped on the real-estate boom bandwagon – isn’t it a sign of the bubble? There’re 4 neighbours who are real-estate agents just on my street of 10 houses.
    Also, don’t you think people will start leaving Austin towards places where they came from (Massachusets, California) if house prices become affordable over there? I personally would

  3. Observer brings up a good point. I’ll qualify it by saying that any area with a huge influx of
    new residents will attract lots of real estate agents( Florida, Arizona, etc.). And Austin
    has indeed had a huge number of new residents the last 4-5 years. The more pertinent
    question is if they are going to do it full-time, or just piddle on the side with it. I think,
    in Austin’s case, there are a a large percentage of folks at least TRYING to do it full-time.
    Most just jumped. The folks who have been in it IN this area for years have nothing to
    worry about(especially people like the Crosslands who write this blog). They have no
    client base or network. Austin is somewhat insular and provincial in nature, as liberal
    as it is, so it is quite hard to just come in and break into this market. I think those
    who moved here from California and other places solely to sell real estate recently
    will go back whence they came from in due time. The commissions are quite low
    per Cali(aver. 130K or so, compared to 500 plus K), and I truly think there is
    a cultural divide they will have trouble crossing out here. Many locals have gotten
    their RE license as well recently. They as well will have problems. It takes a VERY long
    time to get money coming in, and few will be able to put in the 12+ hour days
    making it happen. Bills will mount, and they will be back bartending or whatever
    they did beforehand.
    Lastly, prices will NEVER become affordable in California. God isn’t minting any new land
    out there last time I heard. I think all the AGENTS from cali selling real estate will move
    back whence they came, but the folks with non RE-related jobs will stay. They just
    bought a house 3-4 times bigger than what they can land in Cali or Mass, and they
    sure aren’t downsizing just to live near the beaches again. Personally, I think Austin
    is a fabulous place to live, but if you are used to Oceans, Great Lakes, and/or Beaches,
    it takes some getting used to. The weather, hills, and cool people/places make up
    for it for me anyway. I miss Lake Michigan’s beaches really bad, and my first summer
    here will be tough because of that, but the other stuff compensates nicely.
    My biggest complaint is the traffic and poor road/interstate/exits design.
    It is not a pleasure to navigate ANY streets out here, from Parmer up north to Lamar
    and anything near downtown. Prob the worst city planning per growth ever, hands
    down. Accidents everywhere, nasty road rage, and confusing signage. Also,
    no public places to congregate north of 45 except for strip malls. They need libraries,
    nice big parks, and jogging/bike trails up north. Too many bums panhandling on
    intersections all over too. If they could deal with the growth issues, and shag the bums
    off all the major intersections, this would be one of the most viable cities in the US
    per the weather, jobs, and funky cool places. Until then, I’m digging it.

  4. I cannot help noticing that for some time, several years, there have been many clues that the ‘media’ at all levels are very easily manipulated into running headlines and jumping with both feet into a news bandwagon largely of their own creation and with little if any fact checking. Witness testimony yesterday from Pvt Lynch etc about lies spread by nearly all the media with a little sprinkling from an original unchecked ‘credible’ source. There are so many of these bandwagonned stories that amount to nothing short of sucessful propaganda of some vested interest groups. I personally believe very little of what quickly becomes news of the week as a result of some probably bought and paid for press release of an industry ‘study group’ or even government figures on the economy, etc. The motives are often unclear exactly but their timings are curious,explanations dubious, and they typically are about the tail wagging the dog. For example, don’t real estate professionals rely upon churn – so why not wag the ‘demand slumping’ tail and try to affect the national psychi into believing its really happening and create some panic driven selling decisions to capitalise on. Seems like the Statesman already jumped in. Very few media outfits will do any real fact checking before jumping on and running potentially significant stories like a mad herd. Who is providing any oversight to the many ‘study groups’ governmental or private? In general, not the media until it’s too late, and just another news artical about the news. Almost no-one providing a press release is independent of some political or economic motive.

  5. Ray,
    nice to see someone besides me rambling on polemically, in a good way. of course.
    I think newspapers and the services they rely on(AP, Tribune, UPI. NYTimes) are all full of it.
    And the local Austin paper seems to consist solely of threads of news from those sources.
    For that matter, the Chronicle is actually the leading paper in town. Its local political
    coverage blows the socks off the Statesman. Regarding real estate news, its funny,
    cause some say its this, some that. Its all local anyway. Macroeconomic snapshots
    are carrying too much data to apply to specific markets. And I don’t think the local
    papers in Austin affect the market, cause no one reads them. Have not seen on person
    read the Statesman in any coffeeshop, fast food place, or anyplace, the 10 months I’ve been
    here. This is one area that marches to its own drummer, and wont be affected by
    alarmist national stories of bottoms dropping out of the market. The only thing that will
    affect this local real estate market is the job market, which has just recently got just
    a little bad news per a slowdown in VC investing in the area. That could mean nothing
    much, or a lot, depending on how it plays out. Dell has had problems lately as well,
    which could be another prob. But national news stories? No….not out here….agai,
    they don’t read papers out here……..


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