26 January 2009

Analyzing NAR and FNMA’s January Releases

At 10am this morning, the National Association of REALTORS® released its year-end summary of existing home sales (their commentary can be read here).  As with our prior monthly analyses, we simply want to focus here on the figures that are most important to those within the industry.  Therefore, for both the national and four regional areas, we will look at trends for the number of transactions (or “sides”), mean average sales price, and sales volume (total sides multiplied by mean average sales price).

Although the news following today’s release seems so far to be focusing in on the somewhat surprising December increase in sides, the fact is this is being driven almost exclusively by the West region, where we have seen positive signs for the last six months.  All three other regions continue to be in the unenviable situation of managing through both falling sides and price.


The number of sides closed in December was about equal to that of December ’07.  Although the mean average price fell once again (at $216,000 it is now 22{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off the peak reached in June ’07), inventory was reduced significantly (from 11.2 months’ supply to 9.3 months).  December monthly sales volume was 14{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than December ’07.

Full-year 2008 sales volume was $1.191 trillion.  This was 21{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2007, 32{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2006, and 37{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2005.  This puts the average residential brokerage at the same trailing twelve-month (“LTM”) place as June of 2003.


Compared to the prior year, December’s sides were down 10{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} and price 8{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}.  Keep a careful eye on price in the coming months; the Northeast has to date been the only region to avoid double-digit price drops, however, last month’s decrease was its largest yet.  Full-year sales volume was $251 billion, which was 18{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} below 2007’s levels (and 23{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2006).  The average residential brokerage in the Northeast is now generating the same LTM sales volume as in March ’04.


Both sides and price in the Midwest continue to fall, although December may be showing early signs of a slowing of the rate of decline.  Year-end sales volume was $209 billion (22{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off of 2007 and 32{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} below 2006).  The average residential brokerage in the midwest has to go back to August of 2002 for an equivalent LTM sales volume.


Sides were 7{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} lower than December ’07 while price was down 8{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}.  For eighteen straight months (and 28 of the last 29), the South has experienced declining sides and price versus the prior year (the longest such streak of any region).  There may be signs, however, the transaction sides are finally ready to pick up.  Year-end sales volume finished at $395 billion, or 22{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2007 and 36{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off of 2006.  May 2003 was the last time LTM sales volume was this low.


The number of closed sides was vastly improved over December 2007; for the third month out of the last four, the West has had over a 30{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} sides’ improvement over the prior-year period.  This continues to be an important trend as inventory is being reduced.  As expected, this is coming at the expense of a sharply falling average price, however.  At $252,800, the mean average is 27{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off of December ’07 and 33{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than what the average homeowner could have expected for about a two-year period ending in July ’07.

Year-end sales volume finished at $330 billion (16{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2007, 34{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off of 2006, and a whopping 44{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} off of 2005).  The West’s LTM sales volume is at about where things were at the end of 2002.


It is very difficult to draw any definitive conclusions from this.  Simply put, if these results are slightly better than expected, November was clearly less than expected.  How much of what happened in December was, for one reason or another, a result of November activity being pushed out slightly?  With the exception of the West, there are no definitive trends forming.  The January and February figures may change that, so we will carefully study those releases when they come out.

The following was updated on January 28th when Fannie Mae released its Economics & Mortgage Market Analysis:

Once again there were slight downward revisions throughout.  FNMA’s 2008 median average price (for existing homes) has been set 0.5{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} lower than last month, so their price projections for this year and next were similary reset and brought down 0.5{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}.  I wouldn’t have concerned myself over this had their sales forecast remained the same.  That was not the case, however.  They brought 2009 sides down another 4{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} to 4,748,000.  Even 2010 was brought down 2{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}.  Bottom-line: for the average broker, the total sales volume in 2009 is predicted by FNMA to be 9.9{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} less than 2008 (last month, 2009 was projected at 7.6{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} worse than 2008 so this is a pretty big change).  The 5.5{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} volume improvement FNMA is calling for 2010 (over 2009) will therefore mean most brokers won’t even get back to ’08 levels until at least 2011.  In other words, the vast majority of residential brokers should plan for at least two more years of stress.

If you look at FNMA’s quarter-by-quarter analysis, nationally sides will improve sometime at the end of this year.  Median prices, however, are forecast to continue to decline on a year-over-year basis throughout this year and next.

If you’re a broker and you believe your market has tracked pretty close to the national trends you may want to consider looking at your 2002 P&L for revenue projections, because a 10{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} reduction from last year’s sales volume puts us at about that level.

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