Glut: 5.1 million homes for sale

A major homebuilder warned this morning of the growing problem of "surplus inventory" as another month of weak sales of new homes left the inventory of unsold new homes at 529,000, and the total number of homes for sale in America at a staggering 5.1 million.

Inventory of unsold homes has spiked 14% in the past year, and 77% from August 2004 levels (see chart below).

Homebuilder KB Home reported a 32% drop in third-quarter revenue and warned that inventory will continue to rise, driving prices lower: "We expect housing industry conditions to continue to worsen through the end of the year and into 2008," said Jeffrey Mezger, president and chief executive officer. "Rising foreclosure rates are intensifying the problem of surplus inventory and will likely drive further home price reductions."

Mezger says the "oversupply of unsold new and resale homes" has worsened in many markets. "At this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," he said.

Reuters on new home sales: "Sales of new single-family U.S. homes fell 8.3 percent in August to a 795,000 annual sales pace, its slowest rate in over seven years, while the inventory of homes dropped, a Commerce Department report showed on Thursday."  Inventory dropped 1.5% from July to August, and stands at 529,000.

The National Association of Realtors reported earlier this week there are 4.58 million existing homes for sale, which represents a 10-month supply of homes at the current pace of sales.

Stats:
Month     Total homes for sale Existing homes   months to sell  New homes months to sell
Aug 07    5.11 million           4.58 million       10.0 mo.         529,000      8.2 mo.
Aug 06    4.49 million             3.92 million         7.5 mo.         568,000      6.6 mo.
Aug 05    3.34 million             2.86 million         4.7 mo.         479,000      4.7 mo.
Aug 04    2.88 million             2.48 million         4.6 mo.         404,000      4.2 mo.
Sources: NAR (Existing homes), Commerce Dept. (New homes)

Comments? Insights? Email story tips to lalandblog@yahoo.com.

Comments

[Richard L.]

The article says the current rate of sales is the lowest in 7 years. At this low rate the inventory of new and old homes would last 10 months.

What's the big deal? The stability KB seeks is with a view to ramping up development. There's nothing actually instable about the market. Sales have slowed because the buyers can't get financing or don't want to pay the current price.

If you live in California and you're waiting for a $350,000 starter home you'll never get started. I'm sure over the coming year some lenders will loosen up a bit, the sales will pick up, the current inventory will be gone in 6 to 8 mos. tops and builders will be feeling better.

Bottom line; much ado about nothing.

RCL

[Ace]

'50% off sale coming to a Open House near you.
Tred lightly falling homes prices are the norm.'

I can't believe that people actually believe that price of houses is going to drop 50 percent. If prices drop nationwide anywhere near 50 percent, our economy will be bankrupt.

It is obvious that the current government is going to do everything possible to prevent a bubble burst. They would rather print more money and have record inflation than see housing prices drop. When they do that, it is the home owners who win again and the savers who lose. Great job saving up a 20 percent down payment to buy a house. With the out of control inflation, your 20 percent down payment is now only 5 percent down.

[Jack]

Maybe we can get Brunei to buy up 20% of the excess homes.

[amir]

And yet I don' t see prices falling down. Excluding home builders, that need to report to Wall Street and now see the whole market, few sellers are really adjusting their prices to the new reality. The psychological shock, in transitioning from boom to bust, is too much. It will take years until sellers realize they need to slash prices in double digits percentage points to get any interest in their assets.

Maybe next summer...

[ben]

There are more homes than there are families and many of those homes are unaffordable. If you are looking for a home, wait a few years and prices will come crashing down hard, especially in the coastal areas. You cannot defeat gravity. People working at WalMart cannot afford $500,000 homes.

[Rob Dawg]

Just to be clear, only about 1.5 million houses are for sale. 3.6 million only think they are for sale. Those first 1.5 million will sell at market prices in 60-120 days. Slow but tolerable. The other 3.6 million are in absolute denial. What they don't understand is that they are hurting their own chances to sell. Potential buyers can get discouraged seeing so many high prices for instance.

The phrase "glut" doesn't apply. An overupply does not cause a 50% decline in consumption. The population continues to grow at 1.2%+ and the numbers in household formation or homeownership categories are growing even faster. In this we see 15 months of declining homebuilder construction rates. Were the homebuilders to bulldoze houses at the rate of construction recently we'd still be years away from a demand driven housing market. It is just plain silly to blame a great range of choices at generally lower prices for a decrease in consumption.

[Jim]

Go to college.... Don't work at Walmart and blame the "system" for not being able to afford a house....

[Joe]

Jack D is on crack, folks. Ignore his liberal blather.

[Dave]

I can put a postive spin on this. I just bought a 4 bedroom , 2500 sq foot house in a nice neighborhood for $49,000 and only one week before th closing I demanded the seller pay my closing costs and the realtor cut his commission, and they were so desperate they both did!

[Ace]

'That's why the new Woman-Centric Matters(sm) program is working well for the builders smart enough to take the leap.'

What the? Peter, you sly dog, are you selling advertising now?

[Robert Birdsall]

An oversupply of homes in the upper income bracket an overall glut does not make.

[Cal]

Richard L.:"If you live in California and you're waiting for a $350,000 starter home you'll never get started."

I was looking at a particular area and keeping inventory stats based on price ranges. Last year there was 14 homes under 500k mostly mislabeled town homes, it was more like 5 and they all were extremely bad houses. None under 400k.

Now this year there are 250 places in one city under 500k, with the dregs now under 400k approaching 350k.

The first level commuter towns (like a Santa Clarita) already are under 350k for a starter home. The fruther out towns (Palmdale,Lancaster, riverside) are way under that. You also get the close in dregs that are under that price range.

It not only will happen, it is already happening.

People looking at medians instead of looking at the stratification of the market (in both inventory and sales) are going to be completely surprised at what is really going on in the marketplace.

[DHMartens]

There is no surplus inventory. Most houses on the market aren't for sale. Everyone is putting their house on the market just to force prices back up by forcing the Fed to lower rates out of panic. A more realistic number for inventory is new homes on the market. Builders are realistic about selling homes. Remember It still only costs $80,000 to $120,000 to build a house. If they sell it for $240,000 they doubled there money, $720,000 is a 600% profit. Minus the cost of the land.

[Larry]

Jim,

Do you know how many Criminal Justice, Poly Sci, Womens Studies graduates work for 11 bucks an hour? College isn't the answer my friend, There is nothing wrong with a tradesman pursuing the American dream of owning a home. A College education should not be a prerequisite to buying a home.

Home prices will fall indeed! Even in California. I would gladly give up half my equity in my own home if it meant that my children could afford to buy a home when they start their families.

Raising home prices have been fueled by greed. Realtors, Banks, Builders, Flippers etc... I take no pity on these pathetic leaches.

[Aaron]

Ace,
You are right they will inflate the monetary base but the can't stop home prices from falling.(The Fed can't force people to borrow or banks to lend) We are headed into a DEPRESSION and the owners of captal are headed east to exploit Asia. The American consumer and economy will be left in tatters. America is not entitled to economic success and there can be only one pinnacle in a market based captialistic system and it will be China within 3 - 5 years if not sooner. If China lets their currency appreciate quickly it will happen sooner. The failed Fed attempt to inflate us out of this mess will lead to capital flight out of the US as the price for staples(sundries) go up rapidly. Imagine getting kicked in the b@lls and then kneed in the mouth as you keel over. Sounds pleasant huh. Get your head out of the sand and prepare for the worst.

[Jason]

Bad news for future home buyers like myself: Rent will go up even faster now because less people can afford to buy.

It's hard to say how much property value will decline in a city like Los Angeles because there are always people coming in and willing to pay high prices. Obviously, the outlying cities have been more affected (ex: Riverside). Anyway, the rent/buy ratio will be a little more balanced with the rent skyrocketing so I wouldn't say it's safe to assume prices will drop to 50% as many people predict.

[Jamal Mashburn]

What were the numbers for 1996 1998 2000 2002?

Showing the fall from the peak (04) tells us nothing, especially when the vast majority of us are in this for the long haul.

[waitingitout]

Random thoughts on data and comments above:

Declining sales: the drop in y-o-y sales when compared to the unprecedented run-up is not in itself a sign of the apocalypse. "The slowest rate in 7 years" puts us back to 2000, at the beginning of the speculative bubble, which if anything means that we're only now back to normal. (but wait for it...)

Sell-off rate of inventory is another matter. When you have anything more than a 6-month supply of homes in an area - so the conventional wisdom goes - then you have enough competition among sellers to force prices down. Sure, plenty of sellers are in denial and pulling their homes from the market, but those that remain listed are starting to fall. I've been tracking a subset of homes in the neighborhoods I want to buy, and particularly in September I've watched just about every one of them re-priced $20k-$50k in aggregate. That's 3-10% in a single month. These are the first dominoes to fall.

ACE: Agree that prices aren't going to fall 50% in nominal terms, that would put us below pre-bubble prices. BUt in real terms, 50% is about right. Assuming 3% inflation, you only need an initial correction of about 25% and a few more years of stagnation to get there.

Richard L: Don't be too sure the lenders will loosen up. The bad paper is going to circulate in the secondary market for a long time, and as long as it's out there, no one's going to be too keen on buying more of it. I really think the standards we see today (min. 10% down, no seconds, 700+ FICO required) - which, by the way, are still easier than the historical standards for 100 years - are going to continue at least until this hangover is gone, and that won't be until next decade.

Bottom line: the lending standards aren't going to change appreciably in the near term, no matter what the rates do. Real prices are going to have to fall.

[Jim]

Why is there a problem? Greed? It's simple economics. I want your money and I'll do whatever I have too to get it. Who cares what happens downstream as long as I get mine.

The folks that are scared here are the ones working and paying. You can bet the folks who made money off the sales and financing are laughing all the way to the a bank.

Everyone has to worship something, too bad in America that usually means worshiping money.

[Mac]

This is all Bush's fault, just like 9-11 and Katrina and Global Warming and how they put tomatoes on my burrito today even though I specifically told them not too. All Bush's fault.

[campechano]

ACE- Nobody is saying houses are going to drop 50 % NATIONWIDE, however, there are some markets and some areas within specific markets that have rocketed as high as 171%. Those places WILL see some aggressive ( and painful) adjustments. Exactly how much? I don't have a crystal ball, but I can tell you it won't be pretty. I agree with the reader who says the law of gravity WILL apply.

[TC]

Dave - The "reportage" of the real estate market has nothing to do its current state. There is no conflicting data on housing - there is a severe imbalance with supply fare outstripping demand, exacerbated by issues with our credit markets. Sub-prime demand is not coming back and the latest fed funds cut has caused the 10 yr note (and therefore the 30 year fixed mortgage) to go up, not down, on inflation worries. If housing is what is dragging the economy down into recession – I do not believe the rate cut is the cure for what ails our economy (and if we enter a recession where unemployment ticks up, you’ll think back fondly of the past two year of the housing downturn as the “good times”). If you are in the real estate biz or are trying to sell a home, I am truly sorry, but the reporting on housing as been entirely accurate, if not late to the party. Here a quick rule for you – if you live in an area where housing appreciated at more than double the rate of inflation between 2000 - 2006, the price of your home is going down. Good luck Dave, but remember that market forces rule the real estate market, not “reportage.”

[John D]

I can't understand why so many are expecting massive price cuts from homesellers. Do you think that someone who's desperate to sell now has any equity room to negotiate a slashed price? If they did, they would have refinanced by now to get some breathing room. If a person owes $700,000 on a home that alot of bloggers believe is worth only 400 - 500 thousand, the seller cant just sell for the best price he can get. I think the bank might frown on that. Is it your expectation that you'll wait until the seller walks away from the home so you can deal with the bank thru the forclosure process?

[Semphris]

To those of you who think that housing prices can't fall 50%, you're deluding yourselves. Do not expect the government to pull a white knight maneuver and save the day either.

I live for numbers (its what I do) and the proof is in the actuals. Thats why I like posts like these. Especially when Pete added the year-to-year comparisons.
There is money to be spent on homes except that people are not willing to invest at the current prices. Why should I take on someone elses debt? Let them fall.

[Andy]

Jim said:
"Go to college.... Don't work at Walmart and blame the "system" for not being able to afford a house...."

Listen up Jim: When all your 'college-educated' (indebted and unemployable) American peers are waiting in line for jobs at Walmart because the 'market' in Indian and Chinese educated worker-drones meets the needs of the hyper-capitalist corporate American 'knowledge economy' - without the 'problem' of paying $11 an hour..... see how you feel.
Honestly, when will America 'get it'? Life is not just about being a 'personal success'. It's about trans-generational equity and societal ethics. Thank God I live in a post-modern European, secular market-democracy. We don't want your wacky obesity food, your wacky hedge-fund 'corporate welfare' finance schemes. Or your wacky, egregious junk-loan mortgage lending. Time for some Sobriety, America. You drank the booze, you suffer the hangover.....