The commerce department published the new home sales data today, and it was strikingly similar to that of exisiting home sales report that came out last week.
New home sales are up.
The inventory of new homes for sale is down.
The month's supply of new home sales is down.
Good news on all fronts.
New home sales are up 2.7% from last month, however, they are still down -33.1% from last year. That is a breath taking decline in one year, especially considering 2007 was not a robust year for the real estate market.
New homes FOR sale are down -7.3% from last month, and -25.4% from last year. This is very significant. What this means is that while the demand for new homes has declined significantly, what is also important to recognize is the inventory of new homes for sale is way down. Translation? The builders have been able to burn off a lot of the excess inventory over the past year by lowering prices and providing incentives.
While the reduction in new homes for sale is very positive. The water is still a little murky when you look at the month's supply of housing - this is really the number you want to focus on. The month's supply of new homes declined -8.8% from last month, from an 11.4 month supply to 10.4. However, that number is still up 10.6% from last September when there was only a 9.4 month's supply of new homes.
The big picture is that the new home market is burning off the excess supply that they have been sitting on, but demand for new homes still is in need of a jump start.
Perhaps one of the most anticipated GDP numbers in recent memeory will be published this Thursday.
And while I don't think many people are optimistic about it, in fact many are expecting a marginal contraction, this could have an affect on people's perception of the real estate market.
As you probably know, real GDP is the inflation adjusted measure of good and services produced and incomes earned.
The reason this number is so important is because the perception is that we are entering or are already in a recession.
Typically during recessions, even those whose finances and jobs may be unaffected by the economy, are more likely to cut back on spending. The simple reason being that people become more fiscally conservative. It's kind of like a squirrel getting ready for hibernation. People prepare for what could be a long winter.
We are already seeing banks doing this as they have restricted the amount of credit they want to extend.
First time home buyers may be more reluctant to buy their first home because of job uncertainty. In fact, one of my clients walked away from their earnest deposit on a new home they were getting built because of job insecurity. Not a job loss, but the fear about a job loss.
Homeowners may be more reluctant to go out and get that bigger home they wanted with an extra bedroom. And real estate investors will look at the economy and wonder if the housing market won't continue to contract along with the economy.
There is a lot of uncertainty. And when people don't know what the future holds, that unkown begins to manifest fear.
So on Thursday, most people are expecting a modest -0.5% contraction in real GDP. If this is the case, then we should be thankful. While that would be the largest quarterly contraction since 3Q of 2001, it shouldn't rattle Americans because this is already the expectation of many.
The bigger concern is going to be the 4th quarter GDP numbers which would be more representative of our current economic climate and the Wall St. fiasco that we are currently witnessing.
My hope is that on the eve of Halloween, next Thursday, that we don't get scared by the GDP numbers.
A couple of days ago I had made a post about the new NAR existing home sales data.
The new data revealed that home sales are up, housing inventory was down, and the month's supply of housing was also down - all of which was a good thing.
I mentioned I was cautiously optimistic about this data as it did not yet reflect the deteriorating economy or the fact that the down payment assistance programs went away on October 1st.
Now, all of this being said, here are some interesting things that this report revealed when you dig a little deeper.
First, the West has entered a full blown recovery. The seasonally adjusted home sales were up 16.8% month over month and 34.4% from last year! THAT is a breathtaking statistic. Home sales are up 34.4% in the West region from last year. I have been beating this "all real estate is local" drum for over a year now and this is the example of that.
In every other region in the U.S., the Northeast, the Midwest, and the South, home sales were down year over year, -7.7%, -2.5%, and -7.8%, respectively.
Clearly, the West region had the most room for improvement as they were also the region that experienced the biggest price drops, -18.5% year over year. But as I have said before, when it comes to buying and investing, what you look for is the bottom of the market. The bottom is the point where the relationship between the supply and the demand is at its weakest. This data indicates that the "bottom" of the market in the West was back in January and February of this year when home sales in that region plunged to 56K and 55K respectively.
Since that bottom, home sales have surged nearly 100% to 106K in the month of August.
There clearly has been a defined tipping point in the West region. This is really good news.
Good news out of NAR today as they released their existimg home sales data for the month of September.
Existing home sales are up 5.5% month over month and up 1.4% year ovre year.
Inventory is down -1.6% month over month and -2.4% year over year.
The result is that the month's supply of housing, the leasing indicator of future propty values, is down -6.6% month over month and down -3.9% year over year.
Literally what this means is that market conditions are better today than they were last year at this same time. And we have seen this in our own data that we collect for over 75 markets throughout the country.
What we have seen, depending on the market, was a tipping point either in March, April, or May. The tipping point was when the relationship between the supply and demand was at its weakest. In other words a bottom.
This is all very encouraging news.
What does concern me a bit is that the September home sales data reflects the surge of first time home buyers that rushed to get into a home before the down payment assistance programs went away effective October 1st. This act of Congress will hinder demand for real estate moving forward. I am real curious to see October home sales when they come out next month. That will give us a good idea about the head wind we may see moving forward.
Additionally, let's not forget about the declining economy and job losses. The housing market has been struggling against a relatively stable economy and an aggressive easing Fed monetary policy the past couple of years.
The housing market will not be immune to a national recession.
Colin Barr got it right in an article he wrote for CNNMoney.com today.
Everybody is talking about fixing the banking system. This was what the $700 billion bailout was all about. But there is a missing piece to this attempt to stabilize the economy, it's called the housing market.
The following is a bit from his article:
The government's failure to act pre-emptively and decisively on the housing crunch has only added to the problem, says University of Michigan law professor Michael Barr.
"The administration should have acted a year ago," says Barr, who is a senior fellow at the Center for American Progress. "Doing something for homeowners is the key missing piece of the response to this crisis."
Now, I am not talking about a bailout or a ridiculous stimulus check. I am actually talking about a proposal to get the excess supply of homes off the market, to get them sold.
Until this happens, the government can throw as much money as they want at banks and bailouts, and it won't matter. They are throwing good money after bad money.
And unfortunately, the longer it takes the government to figure this out, the more pain we are going to feel and the more it is going to cost.
Barr was dead on, the government should have addressed this last year, when the secondary mortgage market got wiped out. They have been asleep at the wheel for over a year on this housing market thing and they still don't get it.
They are trying to fix the housing market by pumping billions into Wall St. I guess this is what happens when you have a former Goldman Sachs CEO as your Secretary of Treasury.
I detail my proposal to this crisis at www.ItsTheHousingMarketStupid.com
President of Mark MacKenzie Real Estate Planning, a real estate research and investment services brokerage; author of "It's The Housing Market, Stupid!"
He's been featured as an "Innovator" by the Phoenix Business Journal and a "life-time advisor" by REALTOR Magazine.
Mark MacKenzie has contributed to articles in the Wall Street Journal, the Arizona Republic, national REALTOR Magazine, and he has a regular feature in Personal Real Estate Investor Magazine which is available in Borders & Barnes & Noble bookstores throughout the country.
Mark MacKenzie Real Estate Planning is a real estate research and investment services brokerage. They track local supply and demand trends for over 75 markets throughout the country.
Mark has written and published three books, "It's The Housing Market, Stupid!", "Marketopoly", which debuted on Amazon.com as the #1 real estate and investment book, as well as "The New Gold Rush - Real Estate".
It's The Housing Market, Stupid! is the name of Mark's latest book and economic policy that would stimulate investment demand for real estate and subsequently provide a back-stop to declining home values, foreclosures, and economic conditions.
The fiscal stimulus has its origins in the Tax Reform Act of 1986 as well as the Gulf Opportunity Zone Act of 2005. The policy would allow for more Americans to be eligible to receive greater tax benefits when investing in real estate. The result would be an increase demand for real estate, the excess supply of homes would be absorbed, Americans would receive a tax cut, and banks would be provided with a good source of new loans and income.
"Clearly demonstrates the author's thorough understanding of how tax law and legislation impacts the housing market. Little changes can make a huge difference and that's the very valid premise of this book. I think everyone who has ever considered themselves a real estate investor, or thought about being one should read this very important book."
Diane Kennedy CPA, Bestselling Author - Loopholes of the Rich
"What we need is incentive in the form of new found confidence in free enterprise and capitalism, not another bailout. Mark MacKenzie expertly illustrates the way out of the real estate depression is through renewed interest in investing in the most stable commodity since the 1930's - real estate."
Real Estate "Artist" Frank McKinney
5-time bestselling author, including Burst This! Frank McKinney's Bubble-Proof Real Estate Strategies and The Tap
"Refreshingly grounded in the fundamentals of impacting demand in today's housing market."
John Foltz, President - Realty Executives
"If you're looking for a real estate professional, someone who uses proven techniques and hard work to help you achieve your goals, then Mark is your man. From locating the property, securing financing, closing escrow, setting up property management, and beyond, Mark was right there with us. We often felt as if we were his only clients! Honesty, integrity, and dedication aren't easily found these days, but that's what Mark is all about!"
-Greg & Patty Spears
"Before we started using Mark MacKenzie a few years ago we always thought of real estate agents as a necessary evil, but he has completely changed our mindset. Since then he has become one of our biggest assets in our financial planning. Now, whenever we hear that any of our friends and family are making any sort of real estate decision we give Mark our highest recommendation. Each time we've been thanked and now Mark is one of their biggest assets too. He's not only been beneficial in our home buying but every stage in between. We feel tremendously blessed to have found someone like him at this early stage in our lives. His integrity, work ethic and friendship is something that we know we will enjoy in the many years to come."
-Clint & Kim Rowley
"I would like to express my sincere gratitude, respect and admiration I have for Mark, and his innate ability to assimilate and support my investment initiatives, on both a professional level and a personal level. Mark MacKenzie Real Estate Planning has provided me the means, I feel, to move forward with a plan to personal wealth and eventual financial security.
After contacting Mark initially, he understood my business /real estate plans, with the immediate focus to be on rental properties with positive monthly cash flow. This has been accomplished within the first few months, with an initial purchase of a rental, duplex home in Mustang, Oklahoma.
Mark worked diligently for months with the Sellers, Lender, and Property Management organizations to close the deal, as the properties were still under construction. The purchase of the property was contingent upon the properties being rented upon completion of construction. This provided the immediate cash flow, and not the typical initial vacancy with myself to carry the credit float.
I would like to add that Mark is always available via phone to answer questions or provide his Real Estate expertise. He was patient as he mentored me on many Real Estate disciplines. Where else can you find expert advice at no charge. I look forward to many successful, future real estate transactions with Mark MacKenzie Real Estate Planning."
-Timothy D. McManus
"We are very impressed with Mark's real estate knowledge in forecasting what markets he thinks are going to be a good investment. Over the past three years we have developed a great working relationship and have purchased three investment properties with Mark's tremendous help. His devotion in finding us exactly the right properties and giving us all the information we needed helped make our decisions and the buying process very comfortable and smooth. We appreciate his attention to detail and tireless work ethic and look forward to working with him on all our future real estate endeavors."
-Kurt & Kathy Dodge
"Mark's knowledge of Real Estate investing starategies has been a tremendous help to my wife and I. We are following the 10 year plan outlined in his book and are on our way to financial independance!"
-Jason & Danielle Bliss
"We recommend working with Mark to any buyer or seller. Whether you are a 1st time buyer, or a seasoned investor, Mark is an excellent listener, very knowledgeable about real estate, and will always put your needs first. We worked with Mark in purchasing an investment property in New Mexico, and plan on doing so again. Further, Mark will also help evaluate and advise you on how to achieve not only your short term, but long term real estate goals as well."
-Bryan & Kimberly Lynch
"We have known Mark now for several years. We have worked with him in the purchase of rental properties and continue to do so.
We have found his honesty and expertise to be unsurpassed. He has been of the utmost help to us and others we know. He is an extremely professional individual and takes excellent care of his clients. Mark is always easy to contact, immediately returns phone calls and provides superb real estate market information. We plan to continue to do business with him as we have great respect for his knowledge of the market.
One of the things that we truly appreciate about Mark is the way he looks at all of the real estate market information before we even start searching for a property. Once we have that information it is much easier to choose an area to invest in and feel confident about the purchase that we are making. We can later follow up on our investments by using Mark's web site to access current market information on each property we have purchased. The web site, with use of our password, shows pictures of our properties with a link to the property values which Mark updates quarterly. Mark is licensed in Arizona as well as other states which allows us the opportunity to invest in multiple markets.
We consider Mark to be more than just someone with whom we do business with. We now consider him a friend as well."
-Tim & Andrea Rattenbury
"My wife and I had talked about investing in real estate for a long time (years) but we just didn't know how to get started. We bought our first home in 1990 and it seemed like a nightmare. The ever changing figures, too many meetings and back and forth negotiating.
A couple of years ago we heard about Mark MacKenzie from a mutual friend. We contacted Mark and within 30 days we had purchased our first invesmtent property. Mark makes it easy and stress free that I can't wait to do it again.
Mark went so far as to walk the property for us and even set up a property manager. We gained more than an agent, we gained a friend.
Mark gained our trust, friendship, and lifelong investments. I still can't believe how easy and worry free Mark made our investment and the lengths he graciously went to just insure we were comfortable. We look forward to our next investment."
-Jay & Jeannette Giles
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