Mixed Signals - Home Prices & Inventory

A: New Home Prices plunged today by the biggest percentage in 35 years, wow, as prices posted nearly a 10% decline from a year earlier and more than 15% from peak levels in mid 2005. Meanwhile, Housing Inventory Stabilizes for 3rd Month in a row. Hmmm. Sounds like one of the few characteristics I noted in the post titled, "Realizing When To Re-Enter The Market". Although I don't think its quite time yet, savvy buyers are beginning to carefully anaylze all the data for any signals of a bottom in the housing market BEFORE the rest of the world sees it! "It's all about getting in EARLY", says Rick Santelli reporting from the bond market pits. He's right!

According to CNN Money:

New home prices took their biggest hit in more than 35 years in September, the government said Thursday, the latest sign that builders are struggling to unload a glut of unsold homes as the nation's real estate market cools.

But the median price of a new home tumbled 9.7 percent from a year earlier to $217,100. It was the sharpest drop since December 1970, when prices posted an 11.2 percent decline, and was the fourth largest year-over-year decline on record.

But WAIT! Before you get crazy with this horrible housing data, look at what former fed chair Alan Greenspan was quoted as saying at a recent conference sponsered by the Commercial Finance Association:

"Most of the negatives in housing are probably behind us...The fourth quarter should be reasonably good, certainly better than the third quarter."

Moving on to the suprise dropoff in inventory. According to a news release issued by the National Association of Realtors (NAR):

Total housing inventory levels fell 2.4 percent at the end of September to 3.75 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.

NAR President Thomas M. Stevens from Vienna, Va., said the industry is encouraged that the number of homes on the market is starting to decline. "It appears we have passed a cyclical peak in terms of the number of homes on the market," said Stevens, senior vice president of NRT Inc. "The good news is that fewer new listings are coming online. A stable sales pace is expected to draw down the number of listings to a supply balance that will support positive price growth within a few months. Taking the long view is always the best way to approach housing decisions, and right now, buyers are in a very favorable market."

There is a very KEY PHRASE in this statement that is often overlooked. So, I'll pump up the font a bit for more of an effect on readers.

"Taking the long view is always the best way to approach housing decisions, and right now, buyers are in a very favorable market."

In my previous post titled, "Realizing When To Re-Enter The Market", I pointed out 4 things that should be observed and anaylzed to best predict getting back into the housing market BEFORE the rest of the pack does.

Note: Of course, with this type of contrarian investing there is always a bit more risk as the downside has not yet revealed itself!

Interest Rate Policy

Inventory Levels

Time on Market

Rental Costs

The topic for this post is INVENTORY LEVELS! And the latest data shows some positive signs of reaching a top in the number of unsold inventory. If you recall my advice in that post was to LOOK TO BUY when:

When inventory levels have topped out, reversed course, and are into a correction to more normal levels. If the average # of listings in your local market is 5,000 at any given time, yet that has ran up to 8,000 recently, than you would want to get back in when this reverses course and is closer to 7,000 or so (a hypothetical example). You want to buy when supply outweighs demand, OH activity is lethargic, and good bids for sellers are hard to come by.

All that is reported now is a pause in the 'increase' of unsold inventory signaling a possible top; however, it could be a bear trap (a tricky pause in a longer term bear market that fools investors into buying too early) so watch out!

In addition, we still do not have transparent data on the other points I raise. With interest rates staying where they are for the forseeable future, time on market data still rising, and rental costs not showing concrete signs of reversing (although there is talk that more rental inventory is expected and costs are beginning to top out), it seems the time to re-enter the market might be in our near future; just not yet. So, right now you got at most 2/4 of the items covered.

I would like to see a more concrete sign on time on market data, as well as a clear sign that the fed is in the midst of a rate-easing campaign (think of all the new demand that will enter the housing market if mortgage rates fall back to 5% or lower). Combine that with decreasing inventory levels and I think that will be a very good time to get back into the market! I'm thinking early 2008 right now although that is a looooong ways off and anything can happen between now and then.

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