A Distorted View:Existing Home Sales.

Today we received the existing home sales from the National Association of Realtors and I wanted to comment on these a bit. The headline numbers are off 9% from last year and the median price is down only 0.6% nationally. The median is being distorted by sales volumes above the median in each area propping up what would otherwise show falling home prices in these areas. The greatest decimation in the market has been in middle class housing. Homes priced below 500k have seen the largest price declines and volume decreases. Sales at the high end of the market continues to stabilize the median value. The western region has a median home value of $349,400. The median in Los Angeles for example is about $575k. I think median values are pointless as a forecasting tool. What would be the point of knowing the median price of stock on the NYSE? What's the point in knowing the median price of gas nationally? The price of gas in CA is higher than most other markets because of taxes and a lack of refining capacity boosting the price at the pump. The price you pay in your market matters. Real estate is a locally priced good. It doesn't matter if a similar home is $250k in Chicago and $400k Los Angeles. A home is only worth what a buyer in that local market is able to pay vs other comparable properties in that immediate surrounding market. This is largely dependent on available financing. As the financing has become tighter and more expensive because of higher rates across the board the volume has dramatically declined from prior years.

You can't compare the median value in Malibu to Compton. Pointless. Those markets are at the opposite ends of the spectrum. The only value in my opinion in the NAR home sales numbers are volume and the amount of existing inventory. Volume leads price. The amount of available homes for sale allows the potential home buyer to have more choices and bargaining power. This pressures asking prices. Then as properties languish on the market sellers realize they are above the market and often lower their prices or remove their home from the market altogether. The amount of homes on the market locally and nationally leads me to believe that we will continue to see price declines across the country but especially so in bubble markets for years to come. Notice the big drop off in sales around Mar 2007. That's the start of the implosion of subprime lending. The July numbers are barely reflecting the implosion of ALT-A lending that started in mid July and ran throughout August. I believe the August numbers will post an all new low as financing has become much tighter in the last few weeks. Bar chart courtesy of Calculated Risk.