Tuesday, June 26, 2007

Real Estate Market is Far From Recovery

The National Association of Realtors published their monthly state of the market assessment yesterday, under the title: "Existing Home Sales Ease Slightly in May". According to the report median home prices were down 2.1% year over year, to $223,700. The report says:

"Total housing inventory rose 5.0 percent at the end of May to 4.43 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.4-month supply in April."

According to a CNN report this inventory of unsold houses is at a 15 year high. However this did not stop the Association's President from saying to CNN:

"Buyers who've been on the sidelines may want to take a closer look at current conditions in their area... If they wait for sales to rise, their choices and negotiating position won't be as good as they are now."

You can always trust the realtors to come up with a positive spin even on the most negative real estate news ("it's not cramped, it's cozy"). Truth is that the real estate market is in a deep freeze. With the realtor's own report showing the inventory of unsold homes at historical highs and prices continuing to fall, I would say that the real estate market is years away from recovery.

A few months ago I heard a lecture given by the prestigious UCLA Anderson Forecast, regarding the state of the California Economy. According to the lecture, the real estate market is not typically susceptible to dramatic price decreases. Instead, in a down real estate market, the volume of houses sold decreases sharply while prices stagnate, sometimes for years, as inflation brings the real price of the home back in line with historical trends. If you believe this analysis, which I do, the real estate market will take several years to return to even modest growth.


Shawn said...
This comment has been removed by a blog administrator.
Kevin said...

Great post -- I like the idea that real estate generally corrects by stagnating until inflation brings the real-dollar value back to sane levels. I hadn't encountered that theory before, but it instantly resonates with me.

It suits me fine, too -- I don't need my house rising any since I pay too much in property taxes as it is!