Are We Seeing Price Capitulation In Existing Home Sales In August 2011?

The old laws of supply and demand may be alive and well in the existing home market.  August 2011 data released by the National Association of Realtors (NAR) showed continuing improving volumes with prices contracting.

At a certain point, sellers may no longer be willing to wait for real estate prices to recover – and resign to recover what they can.

Econintersect review of the data shows volume up 21.3% year-over-year (4.2% month-over-month), while prices are down 4.0% year-over-year (0% month-over-month).

The volumes this month have not been seen in August since 2007 when they were considerably higher.

Lawrence Yun, NAR chief economist, said there are some positive market fundamentals. “Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” he said. “Investors were more active in absorbing foreclosed properties. In additional to bargain hunting, some investors are in the market to hedge against higher inflation.”

“We had some disruptions from Hurricane Irene in the closing weekend of August, when many sales normally are finalized, along the Eastern seaboard and in New England,” Yun said. “As a result, the Northeast saw the smallest sales gain in August, and some general impact is expected in September with widespread flooding from Tropical Storm Lee. Aberrations in housing data are possible over the next couple months as markets recover from disrupted closings and storm damage.”

Yun said an extremely important issue currently is the renewal and availability of the National Flood Insurance Program, scheduled to expire at the end of this month. “About one out of 10 homes in this country need flood insurance to get a mortgage, and we would see significant negative market impacts without it,” he said.

The NAR press release hit on mortgage availability and again on cancellations causing “poor” numbers.

The biggest factors keeping home sales from a healthy recovery are mortgages being denied to creditworthy buyers, and appraised valuations below the negotiated price. Buyers may be able to find more favorable credit terms with community and small regional banks, and Realtors® can often give buyers advice to help them overcome some of the financing obstacles,” Phipps said.

Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price – were reported by 18 percent of NAR members in August, up from 16 percent July and 9 percent in August 2010.

Maybe there were a bunch of cancellations – and for sure mortgage institutions want a pound of flesh.  But housing is not exempt from the economics of supply and demand – price and demand must come into balance.  This summer’s peak selling season has seen the balance come from lower prices bringing increased demand.

Home prices continue to fall.  Falling prices normally improve sales volumes and that is what we seeing.  Normal market forces are in action.

Econintersect will do a more complete analysis of home prices  when the Case-Shiller data is released.  The situation according to the NAR:

The national median existing-home price3 for all housing types was $168,300 in August, which is 5.1 percent below August 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 31 percent of sales in August, compared with 29 percent in July and 34 percent in August 2010.

According to the NAR, all-cash sales accounted for 29% of transactions in August, unchanged from July.  All cash purchases were 28% in August 2010.

I see little evidence the housing crisis itself is coming to an end.  The unseen amount of homes that likely will come onto the market will continue to keep downward pressure on the market.  The evidence this crisis is ending will be when the year-over-year housing prices start rising.

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4 replies on “Are We Seeing Price Capitulation In Existing Home Sales In August 2011?”

  1. Actually, Steve, they might not – re: supply N demand.

    FIRST, permit me to “share” wid youses (NJ or Chicago Anguish[sp?]) my request of [email protected] (& his Lawler subject matter expert):

    “Good morning, Bill
    Recently you published a very interesting chart…
    well, all of them are, but some are more interesting that others…, like women.
    It was about the huge increase in “remodeling” by U.S.

    Today, you show U.S. the huge NAR decline in homes listed for sale.
    Other reports show that the decline is broad based…
    and not just in AZ – who has, so we are told, ended the recession.
    but, in ALL of the largest cities, and also most of the non-Shiller followed areas.

    IF both of these factoids are true, and we suspect that they are…
    we would like to submit for your, and Lawler’s, consideration…
    that there is a “connection”.
    Especially in the most underwater sand states – plus Detroit, Atlanta, etc.

    IF you need to come up with half of the price of home/mortgage when it was at the peak…, in order to “buy out” your mortgage, can they do it – we think not.
    So, unless they walk out in a strategic default, why sh/c/would they do it?

    What we also suspect is that those NOT underwater in a mortgage…
    (with the 1st we DO see, and plus the 2nds that we do NOT…)
    see absolutely no reason to sell, when they CAN wait for the RE market to recover.

    And, so, they fix not only what needs to be fixed, but things that they would like to have “in their next home” = ergo, they remodel.

    As “they” say, what you are looking for in RE is a “willing seller”.
    You, and everyone else, “assume” that sellers are as willing as they have always been.
    We, however, do not believe it.
    (End of quote)”

    THAT, Steve, is an “Et Tu, you brute’, you!”
    [that IS what (all) your lover(s) say(s), isn’t it?]

    SECOND, when we looked at Mike Orr’s not-quite-so-Comfordable (sp) Report for Phoenix, we noticed two rather interesting factoids:

    ONE, all sales are up by about 1,500 per month and REO sales are up by about 1,000 per month over the last six month/year. So, 2/3rds are all cash investor buyers.

    However, home prices for all sales are down on average by about US$ 15,000 each and REO sales prices are down by about US$ 20,000 each – over last year, and on home prices that went from US$ 125K last year to 104K this month.

    And, total “annual” non-foreclosure sales are only up by 3,000!
    MOG, but what a truly, wonderful recovery this one is?

    TWO, total and new listings have collapsed. And, now, new foreclosure NODs have leaped up this month, to supply the “hidden”, and not-quite-so-hidden MLS, listings.
    Pardon ME…, but “Why?” and/or “How?”

    Digression, Steve?
    BoA has increased its NODs by 116% on the West Coast = the sand states of Cal, Nev and AZ – plus, lucky them, WA and the ORE-is-not-golden.
    Forgive me for asking, but WHERE did they find them – after three+ years of sky-high foreclosures?

    True, M2M home prices and sales are “seasonally” up in Phoenix.
    However, Y2Y home prices are down by another 10+%, and sales are not all that up by much.
    NOTE: The “average” – half higher, half lower – decline in Maricopa County assessed valuations is down by only about 62%. That was last year, this is NOW – they have dropped another 10+%. Or 15% or 20%.
    Note, also: That the highs this year are lower than the highs last, and we are now exiting stage left, AZ’s too Far Right selling season; and entering the much more normal AZ Winter snowbird’s season.

    So…, STEVE – and [email protected], Mike Orr being “Comfortable” and/or the AZ-MLS, or who/wherever:
    Who, precisely – other than…
    – those who are being divorced (for being “at fault” for having at least one (1) very lovely “fault”, on the side; in a no-fault state)
    – those who have died (or are about/getting ready to, due to illness or suicide)
    – those who have lost their jobs (OR their lovers, who were supporting them, have)
    – those who have already been, or sooner or later will be, driven in BK by their extremely bad ARMs or subprime RE loans, and or resets!
    w/c/should want to list their homes for sale in This GD disgusting RE market.
    (and that, Steve, is and is not a question) (4 U 2 answer, 4)

    The Good News, Steve, is that for the next six (6) month it probably will not rain.
    The Bad News is that at nights we have nothing much else to “cuddle” with other than our immigrant Seattle/PNW’s Eddie Bauer down comforter. However, we only need that, at our age, a couple a nights a year.
    (that is and is not, quite, a joke 🙂

  2. “Black John Richards”, our Torts prof at UoWA in Seattle, opined every GD day it rained = every GD Mon, Wed & Fry-not-day, in [email protected] (c):
    “Into each life a little rain must fall…”

    When we “arrived” in Arid-zone-AH!, after my mother entered “the Next/Other Promised Land”, both the AZRep and EVTrib announced:
    “146 days without a drop of rain”!

    Asked we, of ourselves, of course:
    “What part of 40 days and 40 nights do you NOT understand?”

    Then came W’s –
    (and The AZ “Johns” – the said out of st(K?)yl’s and mcCain’ts)
    – Haboob!!!

    “A haboob (Arabic:”هَبوب”, “strong wind”) is a type of intense duststorm commonly observed in arid regions throughout the world.”

    In an AZ “dust up” that “obscured” ALL new home building, all existing home sales, and all home values!

    Asked we then: “What – in Hell – IS this?”

    What almost every one of our former RE agent/broker, mortgage broker/banker, escrow, title ofcr, appraisal, and construction general and specialty clients…
    and friends….
    (well, as one had The Nerve to say: “If you don’t stop asking me all these very difficult questions, we will have to come down there and kill you!”
    To which, or is that wit, we replied
    “Tis July. We double dare you, to try it!”)
    “That is exactly what happened in Seattle when Boeing shut down…!!!”

    Forgive this rather interesting digression:
    What traffic engineers, and the police, have observed is that when we human beings are confronted by “an obstacle” – where there ARE ways around and/or through it – we instinctively WILL use them.
    EG, people entering into and exiting from sports events – win or loose!

    “Free market” and “Capitalistic” theorist – aka Duh Milton Friedman – assume that that means we ALWAYS will, even blindly, choose The Best alternative.

    The 10 Commandments assume that many (too?) of U.S. probably will not.
    (Muslims appear 2 assume that even when they do not, they will still “have” 72 virgins! Although it is not at all clear where they will be able to find them.)

    What still astounds me – after 64 n 1/2 years out of 69 in The States – and still being educated – is that very few of U.S. understand the true significance of “incentive” in the creation of The American Dream.

    The REAL reason America said:
    “Give me your tired, your poor, Your huddled masses yearning to breathe free…!”
    was that THIS absolutely WAS The Land of “Opportunity”.

    Prior to 9-11, did William Jefferson, and Barney Frank, try to make it possible for more blacks to own their own homes – well, yes. After 9-11 did George W and the Republican party try to make it possible for Hispanics – Cubans in Fla and Mexicans in Tx, Az and Cal – to own THEIR own homes – well, yes.

    And, did W and mcCain’t and most other R’s advocate (aka, vote for) Mexicans to be allowed to immigrate into U.S. And, more cheaply, replace whites and blacks in the work force?
    Don’t ask, don’t tell…!!!

    Did both D’s n R’s assume that if WE made it possible for “Those People” to become part of “The American Dream”, that they would vote for them? – well, duh!

    Do Southern (and now some Northern) Whites assume that much like after the un-civil-war, the fact that they have already lost the population “balance of power” not mean that with a little ol’ Tea Party they can re-capture political power?

    So, with your own permission, to yourselves, John N Steve, ask this:
    “What does any of that have to do with any of this – Steve’s article?”

    Merely (?) this:
    What NAR reports and sees is clearly wrong.
    What [email protected] thinks he and his subject matter expert Lawler see probably is wrong.
    What you hint that you see, and what you promise you will look at, is – shall/may we suggest: Somewhat “distorted”!

  3. JGB,
    as you can tell – i do not think the real estate crisis is over. the lower the prices go – the more homeowners go underwater. bad, bad, bad for everyone.

    we are spoiled because in our lifetimes, home prices have only gone up. so the expectation is that this will happen. the NAR in their tapdancing continues to suggest this will happen – it might happen, but not soon.

    many talked about low inventory levels – but no one really knows what the shadow inventory levels are – especially the retiring boomers (yes, some will retire).

    there will never be a consensus on what to do in this crisis – and maybe the “correct” course was to let the wildfire run its course.

    i am not a social engineer. i was trained to run corporate units – where the report card was quality and profits. in private industry, we test solutions (meaning more than one) – and we continue to optimize.

    public policy resists change. you and i elect the people who create (stagnate) policy.

    look in the mirror – you and i are likely the problems.

  4. Said you, half accurately: “look in the mirror – you and i are likely the problems”

    Asked we:
    Have you been talking to my first and last ex-wife?
    If you have, we know more about you than we wanted to know.
    If you have, you think you know more about me than we want you to know.

    Asked you: “and maybe the “correct” course was to let the wildfire run its course.”

    Sternly, observed me: That W should not have even tried to stop the Hemorrhaging?

    One of the more interesting medical/legal/ethical questions is what, if anything, should we do when we think that medical care CAN solve a/the problem, and the biological parents “believe” that medical care cannot, and that only their faith in God will.

    Thank God – pick one – W did not let his born again faith prevent him from doing what he believed he HAD to do – to save U.S.

    An R “nationalizing” FMae&FMac and then guaranteeing to “the Communists” in China that they and we would not loose any investment dollars, as Craig Ferguson robotically tells U.S. nightly – “in (y)our ‘shorts’ !!!”

    NAR’s “Go-Go Dancers” understand a hidden inventory of “cash”, in your panties/shorts, and some “protest-tuition” (sp) – even if you pretend not to.

    Far too little credit is now being given to W for stepping up, much like after 9-11, and doing what needed to be done economically to at least TRY to stop the bleeding.

    Said you: “we test solutions (meaning more than one) – and we continue to optimize”

    Conceded U.S.: and you, and John, are very good at it, too.

    Observed we:
    With DWIs we had to figure out if you really had a drinking problem, and needed treatment – even intervention; or with a deferred sentence and then a clean record, would never again be seen in court.
    With divorce, we had to try to figure out how to prevent you from killing yourself, and/or your spouse, even your kids; and get you to do what you KNEW in your tummy was in their best interests, even if you couldn’t publicly agree with any of them on what that was.
    With domestic violence and other criminal cases, we had to figure out what, if anything, would get you to decide to simply stop. Or, what to do with you if you, as a pedophile, could not.
    With The Leg we had to find “The Votes” to try to stop what was bad, and to pass what was good. Your enemies were sometimes VERY interesting “bed fellows” – literally and figuratively.
    With politics we had to help draw district lines so that good candidates could get elected, from both parties. And, then show you where your “saints” and “savables” were so you might actually win.

    With you, and John, we have to figure out how to get you to continue to do what you do best – challenge “Them”, yourselves and U.S.
    (Telling U.S. “The Truth”, will, sadly, not set you free. So, sorry [AmMovieCh] !!)

    You do see tis like when Dan Rowan said to Little Dickie Martin:
    “Say ‘Good Night, dick’ !!!”
    Most of U.S. assumed that Dan was using “Dick’s” given name. We did not.

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