Wisest of the crowds

The National Association of Realtors reported existing homes sales today (the press release). The data was scary and probably indicated the first quarter activity was a knee-jerk reaction by consumers who were sidelined the previous quarter. Of course this didn’t stop the NAR from spinning it as Matt Carter at InmanBlog noted in his excellent post, “Again with the weather”.

Here are the facts:

- Nationally, sales declined 8.4% versus last month and is down 11.3% versus last year.
- The West was hit hardest, being down 9.1% versus last month and down a whopping 16.7% versus last year.

- Median prices were up 1.6% nationally but down 1.8% in the west versus last month

- Inventory declined 60k units (1.5%) to 3.75 million units but because of faster declining sales, the number of months of supply actually increased to 7.3 from 6.8 a month earlier.
- This monthly decline was the largest since 1989 according to the Associated Press via MSNBC and the NYT

What does this all mean? Probably just that there was a “dead cat bounce” in interest in the first quarter of 2007 after the unbelievably slow fourth quarter of 2006. This happens all the time in financial markets where people attempt to bottom pick a falling market resulting in a series of rapid, but ultimately unsustainable, bounces. If this is in fact a dead cat bounce, look for prices to go substantially lower. From my experience as a trader, it will only be when people loose hope that a bottoms in prices gets set. Did you know that more people lost money in the 1929 crash buying stocks 50% below their peak?
Having said all this, markets are hyper-local and what’s true generally can be completely untrue for your neighborhood or street. If you live where new supply is negligible and high-paying jobs abundant and secure, don’t sweat it. If you live in a place where new construction in plentiful and excessive credit rampant, look out (sorry Florida)!

Side note: My-Currency markets are predicting lower prices in many san francisco zip codes over the next 3-6 months. An example for 94117 (Haight, Alamo, Ashbury Heights, Cole Valley)

Last night I had the great privilege to meet Glenn Kelman and the Redfin gang at the Socketsite drinks in San Francisco. There was a big mix of people including housing consumers, real estate professionals, notable bloggers, and entrepreneurs. What was most interesting was to hear the optimism from various people about the state of housing this year. Everyone acknowledged that the last quarter or two were hard but that 2007 is looking hot.

Interestingly, a couple of headlines this morning have highlighted the generalized and backward nature of news reporting versus the localized and forward looking of people on the ground. For example:

- Toll’s Orders Plunge, Forecasts Larger Land Writedown - largest U.S. luxury home builder, reported a 33 percent plunge in first- quarter orders

- HSBC shares fall after it ups bad loans provisions - “Foreclosures have shown a higher severity” than expected, Chief Executive Michael Geoghegan said on a conference call. “The major impact was taking into account adjustable mortgage resets.”

Please note that housing stocks are down approximately 3.00% this morning on the combined news.

So here we are again juxtaposing the headlines versus the word on the street. What HAS happened versus what IS happening and WILL happen. The global versus the local. Notable blogger and realtor, Kevin Boer in Palo Alto notes that properties are back in multiple offer situations. John Harper of Danville and Andrew Maury of San Francisco are also reporting mutliple offers and a very bright outlook for housing in their areas.
Stay close to your market and look at what is happening on the ground and what is likely to happen and don’t worry about the headlines. My-Currency is committed to help you gather hyper-local information that is forward looking.

Today’s lead headline in the SF Chronicle: “Home buyers going deeper into debt”. The article sites some harrowing stats:

- 21 percent of buyers last year took out mortgages with no down payment, soaring from just 4.5 percent in 2000

- The number of homes sold in the Bay Area dropped 19 percent last year compared with 2005

- median down payment fell 8.8 percent to $73,000 last year from $80,000 in 2005…the first annual drop in median down payments since 1995.

- 43 percent of people who purchased a house last year relied on a second mortgage

- number of California homeowners who fell behind on mortgage payments more than doubled during the last three months of 2006.

Okay so where is the good news? In short, there isn’t much except to say this is all backward looking stuff. Remember that what HAS happened is less important that what WILL happen. People are resilient and highly motivated to survive.

Clearly some will get caught having stretched too far but the issue really is about the broader impact on your local real estate economy. If you are living in a neighborhood where $3 million dollar houses regularly trade, this is irrelevant stuff. If you are living in an area where a missed paycheck is a real possibility, then the impact on the local housing economy (and hence prices) can be real.

So in examining the potential impact of these stats on your current situation, remember that markets are hyper local (assuming there isnt an exogenous shock) and that the past is not necessarily an indicator of the future. At My-Currency, we are delivering both hyper local intelligence and FORWARD looking data.