Anthony Ricigliano – It’s Not Over Yet in Housing

It’s not over yet in housing as the recent July sales reports of new and resale homes hit lows not seen for three years. The July numbers were off by twenty percent from the previous month in Southern California with other reports showing similar declines as new and re-sale home sales fell sharply across the country for the month of July. The supply of houses currently for sale would take over ten months to sell at current demand levels with indications that the time frame could extend to a year in the near future. The high for this metric was 11.2 months in February of 2008.

Keep in mind that these are numbers supplied by the National Association of Realtors (NAR) which has developed a reputation for finding the silver lining behind every cloud in the real estate market for years. Other industry watchers numbers show a picture of housing which is even bleaker. Anthony Ricigliano Housing economist Thomas Lawler's preliminary estimate for existing home sales in July is 3.95 million. If that’s the case the number would mark the lowest number of sales since 1996. Going further his estimate for the supply of houses currently on the market in July would calculate out to 12.3 months of supply.

Historically, normal housing markets which are health have less than 6 months of supply according to studies by Case-Shiller. Once the supply number goes over six months, prices soften and start to fall. These metrics for the supply of housing don’t include an aspect that didn’t factor in much or was completely non-existent; shadow inventory.

Shadow inventory is made up of homes which have been foreclosed but aren’t currently listed for sale by their respective REO departments. Shadow inventory homes typically kept off of the market when an area has been hit with a high foreclosure rate. The logic here is that putting more homes up for sale, in addition to a boatload already out there, is just going to scare potential buyers and depress prices further. Shadow inventory numbers are part of the total of Anthony Ricigliano Homes in a lender’s REO department and getting precise numbers is difficult. One estimate number which was put forward by well respected Amherst Securities analyst Laurie Goodman in congressional testimony in December 2009 came in at 7.2 million.

If that number is close to reality, the actual supply would take a lot longer to liquidate. That’s a big chunk of homes to get through, made even tougher by a soft jobs picture and lending standards which either exclude buyers completely or relegate them to the very low end of the market.

Keep in mind that this inventory buildup occurred as sales were pushed forward by the homebuyers’ tax credit, which is now expired. What it all means is that the housing recovery has a way to go which could include another bout of lower prices. The one piece of advice I can offer is any statistics coming out of the NAR should be taken with a grain of salt.