Saturday, February 19, 2011

Are Home Sales Worse Than They Look? -

When trying to figure out which way the real estate winds are blowing, it helps to look at the numbers.

But whose numbers?

Challenging home sales figures may be even worse than they appear, it's feared, and demand for new construction might lag longer than hoped.

A new home goes up in Palo Alto, Calif. Builders have yet to see a turn in the housing market after the worst year for new-home sales in half a...

A new home goes up in Palo Alto, Calif. Builders have yet to see a turn in the housing market after the worst year for new-home sales in half a... View Enlarged Image

The National Association of Realtors' widely reported data show existing-home sales fell 5% in 2010 to 4.9 million units. The group said an accelerating pace at the end of the year was promising. But data-tracking firm CoreLogic this week said it believes NAR's figures overstate sales by 15%-20%, and that they actually slumped 12% last year to a much more anemic 3.6 million.

NAR says it believes CoreLogic's analysis is wrong. But the trade group could end up revising home sales later this year anyway, once it settles on new benchmarking criteria, necessary because the Census Bureau has stopped collecting data on which NAR used to rely.

"At this point, we believe any data drift to be relatively minor, but must have a new independent benchmark to confirm," NAR spokesman Walter Molony told IBD, noting that the group is consulting with outside experts.

Changes Coming In Days

Complicating things, NAR plans to release revised sales figures for the past three years when it issues January sales results on Wednesday. This will be the group's annual fine-tuning based on the current forecasting models, Molony says. It won't be a big downward restatement previously predicted by some bloggers and housing analysts.

The sales pace tells how fast the housing market can burn off excess and distressed inventory. This has to happen before demand for new housing construction can broadly pick up, aiding the economy with jobs for everyone from carpenters to sellers of shingles. And it hasn't happened yet.

Fits And Starts

Single-family home starts fell in January, down 19% from a year ago and 1% from December to an annualized rate of 417,000 in the Census Bureau's report. In healthier times, the industry was starting about 1 million a year. Multifamily starts, however, shot up 80% from December on apartment demand.

Homebuilders had to scale back starts drastically in the housing bust that began in 2006 — why that's the case is easy to see in sales figures.

Through past housing ups and downs, new-house sales held in the vicinity of 15% of overall home sales. But this time they took a sharp hit, falling to just 7% of all sales by 2009 and 6% by 2010, based on Census and NAR data. Builders just haven't been able to compete against prices on foreclosures and short-sales.

"High unemployment, weak consumer confidence and an oversupply of existing homes selling at distressed prices conspired to keep a lid on demand and pressure on new-home construction throughout much of the year," Richard Dugas, CEO of U.S. homebuilding giantPulteGroup (PHM) told investors earlier this month.

Overbuilding characterized the boom, particularly in certain notches of the Sun Belt such as Las Vegas and Florida. But prices have fallen so far in many places that homes are at their most affordable in decades.

Still-high unemployment has reined in buying, however. So have tighter-than-before lending standards and worries about what's next for the housing market. Builder sentiment remains low in the National Association of Home Builders' monthly survey.

The question of when new-home demand will return floats in a sea of still-troubled housing data. Was overbuilding so severe that the nation won't need to boost its supply of single-family homes anytime soon?

The health of the housing market varies by place. Recovery depends on how soon homebuyers absorb the extra inventory in each market.

"This (building) is going to be a lagging indicator," said Eric Tyson, an author of books on real estate investment. "It's going to take time to work off that excess inventory that's been constructed in many parts of the country."

Some larger builders think the housing market is bouncing along the bottom now. Many with cash or access to loans are buying up land at fire-sale prices, to bank for the eventual turnaround.

Also, there's doubt about that widening gap between NAR existing-home sales and Census new-house sales. Some real estate observers think it signals that NAR's numbers are too high. CoreLogic says its data began diverging from the trade group's in 2006. The firm says in a report that "benchmarking drift" and other factors are leading to NAR over-reporting.

Benchmarks Sought

NAR tallies include sales from Realtors' Multiple Listing Services, and make assumptions for sales outside that system, such as bulk investor deals and auctions.

Key Census questions the group used in benchmarking are no longer being asked, Molony says. They are basically: Did you move this year? Did you buy or rent?

So NAR is looking for new independent data it can use to benchmark — and more frequently, perhaps annually — rather than waiting a decade for each new Census, Molony says. Over such long spans it's possible things like population shifts can skew figures. NAR's last re-benchmarking was after the 2000 Census.

by Kevin Harlin Investor's Business Daily February 17, 2011

Are Home Sales Worse Than They Look? -

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