Housing Bubble Conflicting Data Released

The housing market threw the world another curve on Thursday. After five straight months of declining sales of existing homes, a sixth dreary month was pretty generally expected. Instead the National Association of Realtors announced that February sales of previously-owned homes had jumped 5.2 percent from similar sales in January. This was the largest monthly increase in two years.

Wow, so much for the housing bubble bursting. All of the "experts" are wrong. The national love affair with real estate continues. NAR itself said that the encouraging report was a sign that the market was "stabilizing" and should "level out" in the months ahead.

That was March 23.

Friday, March 24 the Commerce Department released figures on new home sales for February and you could hear builders' hearts hitting their heels from Bar Harbor to San Diego.

The Department found that sales of newly constructed single family homes fell 10.5 percent between January and February to a seasonally adjusted annual sales rate of 1.08 million homes. This was the second month in a row that new home sales had dropped and, according to the Associated Press, was the largest month-to-month decline in nine years. The change was immediately seized upon by business writers as a sign that the market was indeed slowing, perhaps precipitously, after five unprecedented years of growth.

So, while you are icing your neck to ease the effects of that whiplash, here is a rundown of the reported results.

Existing home sales which include single-family, townhouses, condominiums, and co-ops, achieved a seasonally adjusted annual rate of 6.91 million units in February compared to a revised January figure of 6.57 million units. While this was a 5.2 percent increase month to month it was a decline of 0.3 percent compared to February 2005.

The median home price for all property types was $209,000 in February, a 10.6 percent increase since the same month a year earlier. Inventories, however, were also up 5.2 percent to 3.03 existing homes available for sale. This is a 5.3 month supply at the current sales pace, the same inventory figure as in January.

By type, condo and cooperative sales were up 8.8 percent in the month to a seasonally adjusted rate of 850,000 per year. Median condo prices were up 3.5 percent from a month earlier. Single family sales increased 4.7 percent and median prices were 11.6 percent higher than one year ago.

Both sales and prices rose in every region except the South. The Northeast saw sales in February jumping up 19.6 percent and prices increasing 5.2 percent since February, 2005 to a median of $263,000. The Midwest enjoyed an 11.1 percent increase in sales and a median price of $160,000, an increase of 3.9 percent year-over-year

Western prices increased 12.1 percent over the year to a median of $306,000 with sales up 5.1 percent to an annual figure of 1.44 million. This, however, was a decrease of over ten percent from February 2005 sales figures.

In the South sales were down 2.5 percent but still were 3.1 higher than a year ago. The median price was $182,000, up 11.7 percent from last year. NAR offered no analysis of the role of Katrina in these figures.

NAR's Chief Economist, David Lereah said that the mild weather experienced in January was probably responsible for some of the sales gains, with signed contracts that month closing and becoming part of the February record.

NAR President Thomas Stevens said that "Housing is simply returning to a "normal" market where annual home prices will rise a little faster than the overall rate of inflation." He went on to state that the highly leveraged position of home owners, with a relatively small down payment reaping a reward from the total home appreciation means that "normal is pretty good for the typical homeowner and that is what we expect for the foreseeable future."

In the case of new home figures, the significant decrease in the sales of new homes since January was accompanied with news that sales were down 13.4 percent from the February 2005 figure of 1,247,000 units and median prices had declined from $237,300 to $230,400. Even more startling, the January median sales price was $234,200.

The Commerce Department estimated that there were 548,000 new homes for sale at the end of February, a 6.3 month supply at the current sales rate. This is an increase of a full month's supply since the end of January.

What do these two studies and especially their divergence mean? Who knows? There could be a lot of commonsense reasons for the decline in new home sales and the rise in inventory. For example;

Builders have been diving into or entering the market and permits and housing starts have risen pretty steadily for some time;

New homes tend to cost more than existing homes on a per square foot basis;

New home sales when recorded tend to lag the market as they can reflect a market three months to even as much as a year earlier.

As inexperienced or greedy builders have begun or stepped up production, some bad product has come on line, at least in the part of the country visible from here.

Another study released earlier this month by the National Association of Home Builders (NAHB) stated that its NAHB-Wells Fargo housing market index, which measures the confidence level of builders, fell to 55 in March from a downwardly revised 56 in February. This is the lowest level for the index since April 2003. Index results over 50 indicate that builders have a favorable view of housing market conditions but NAHB Chief Economist David Seiders stated in the organizations press release that "rising interest rates and high rates of home-price appreciation have raised the bar for homeownership beyond what some families can reach."

We leave it to you to analyze the data and draw your own conclusions about the direction of the housing market. Certainly the economists are confused and both the Pollyannas and the doomsayers are out there hoping to make a name or a buck from their predictions. We will look at a few of the more outspoken and even outrageous prophets in coming weeks.