Existing Home Sales & Foreclosures

A: The NAR released Decembers existing home sales this morning allowing us to see how 2006 did overall. While home prices hung onto gains for the year, albeit a very small one, existing home sales dropped by 8.4% marking the biggest fall in sales volume for this metric in 24 years. Oh yea, and foreclosures surged 42% in 2006.

For those of you that read UrbanDigs, you know that I try be as unbiased as possible in my reports so that you can make educated investment decisions. I also try to keep it realistic as I discuss Manhattan real estate, which is so different than any other local market across the country. So, when national data reports get released you must understand that there may be a disconnect between the report and what you are seeing in todays New York City real estate market!

In short, NYC has shorter bust cycles and longer boom cycles than most markets in the US.

On to the news.

Existing Home Sales

For 2006: The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005. Even with the sharp drop in sales last year, the median price of an existing home sold in 2006 managed to rise a slight 1.1 percent. But that was far below the double-digit gains during the boom years. The median home price had risen by 12.4 percent in 2005.

For December: The National Association of Realtors reported that sales of existing homes were down 0.8 percent last month, a bigger decline than had been expected. The 0.8 percent drop in sales in December came after two straight months of improving sales, the first back-to-back sales gains since the spring of 2005.

Foreclosures Surge in 2006

For 2006: The number of homes in the United States foreclosed by lenders rose 42 percent in 2006 from a year earlier in a sign that many homeowners have became overextended in mortgage debt, a real estate information service reported Thursday.

More than 1.2 million foreclosure filings were reported nationwide during 2006, which is a rate of one foreclosure filing for every 92 households, according to RealtyTrac, Inc. As much as $1.5 trillion in adjustable-rate mortgages are due to have their rates reset this year, according to the Mortgage Bankers Association. Many recent homeowners are already struggling to make those higher payments and are drifting toward loan default and foreclosure, said James Saccacio, chief executive officer of RealtyTrac.

UrbanDigs Says: Both of these reports really shouldn't be much of a surprise. Existing home sales are slowing as prices continue to correct to stimulate buyer demand. Sellers who must sell are agreeing to these lower prices while other sellers stay put or agree to remove their listing from the open market; therefore leading to lower sales volume. On the foreclosure report, you are starting to see the effects of the fed's interest rate hike campaign that started a few years ago. As homeowners struggled to afford sky-high asking prices, they resorted to exotic loan products to make the numbers work in the short term, leaving them out to dry when rates ultimately reset. This is what is happening now and the weak players will get hurt from their past decision to rationalize a purchase of a home they cant afford by taking out a creative loan product. A big no-no! As foreclosures rise, expect banks to tighten lending standards and the fed to regulate these exotic loans to protect consumers. The end result ---> a possible credit crunch or tightening of borrowing standards that could (and I stress could because it hasn't happened yet) restrict affordability down the road. One of my stated threats to the severity of the housing correction we are currently in.

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