An ugly report for residential real estate
Yesterday, the National Association of Realtors ("NAR") released their report on March existing home sales. The surface numbers looked like a disaster, although the reaction of housing stocks was muted and some of the bad results can be explained by bad weather in March.
Home sales fell (from the prior month) by 8.4% to an annual rate of 6.12 million homes, the lowest rate in three years and the biggest one-month drop in 18 years.
Although inventories of homes for sale fell by 1.5%, since the rate of sales fell so much faster the current supply represents 7.3 months of sales, up from 6.8 months at the end of February.
The statistics inlcude both single-family homes and condos, with the home market about 7 times larger than the condo market. The price of the median home is down 0.9% from a year earlier while condo prices show a 3.2% year-over-year gain.
Every region of the country was weak in terms of both price and quantity of sales, but of particular note is the 2.9% year-over-year price drop in the West.
I've been saying for more than a year now, and I still believe, that real estate is in for a long grinding bear market. While the President of the NAR is saying that "It’s a good time to buy", I disagree. Yes, it's a better time now than a year ago, but if I were interested in buying a house but had the flexibility to wait, I'd give it some more time. Simply because we have not repealed the business cycle, I would expect economic weakness is the relatively short term, i.e. within 18 months, which should put additional pressure on housing prices. If interest rates fall as markets look at some degree of recession, the combination of lower prices and lower interest rates will give the opportunity to buy real estate at what, from the vantage of today's market, will appear to be bargain prices. That said, I do not believe that real estate will increase substantially in value for 5-10 years. Just like any other bubble, it takes time to clean out the "weak hands" and the overhead supply of homes. If interest rates increase noticeably from here, today's prices will look like they were a great selling opportunity.
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