Jul. 21, 2008 - Housing Sales Volume is Stabilizing
Above stats not compiled or published by NWMLS
Last week when I did the Sunday Night Stats over at Rain City Guide, I noted that "volume is stabilizing".
On the Tuesday after that Sunday, Lawrence Yun, Chief Economist for NAR also used those words "volume is Stabilizing" in the conversation we had with him courtesy of Dustin Luther and 4Realz.net. (you can click the play button at the bottom of that 2nd linked post to hear the conversation.
Some people have been asking, what does "Volume is Stabilizing" mean? YOY sales are still down dramatically, so how is volume "stabilizing"?
Once you give in to the concept of diminished sales on a YOY basis, knowing volume is forever changed for the near distant future, you have to track if the volume is continuing to drop OR is stabilizing at the dropped level.
The way that you do this is to compare the normal relationship of one month to another. Let's say sales in November are lower than July. Some will report that as "volume continuing to drop" and that could be erroneous, though literally correct.
Think of it like body temp. If someone's normal body temp is 96, they could have a high fever at 99. Someone else with a normal body temp of 98.6 would have a very low grade fever at 99. Same temp, different diagnosis.
If November is normally 7.5% of a year's sales and July is normally 9.5% of a year's sales, then that standard drop from July 2008 to November 2008 is not a DROP in volume relationships. It is a literal, but expected and normal drop. That is why I like to use the pie chart as to literal volume and the bar graph as to expected relationship of sales in a year's time.
You can see that the pie slices moved into a normal pattern subsequent to the immediate drop in August/September of 2007. Jan, Feb, March, etc...fanned out in it's normal cyclical pattern. That is what we mean by "volume is stabilizing".
However, I am seeing a few red flags in that regard. Residential seems to be playing out in fairly normal pattern within a normal range of variance. Condos however are a little harder to call at down to 506 from May's 544. In previous years May has sometimes exceeded June, so I'm not saying it's a problem, but it is a red flag to watch.
I base this not only on the pure numbers, but on what I am seeing in the marketplace. I was taught to watch the condos more closely than single family homes during a downturn as if condos don't move well, that affects all legs of the marketplace in lag fashion. Condos not selling well is often the first sign that the residential market will have trouble a few months ahead of that and in continued fashion. I believe that could be the case.
In smaller samplings I have seen many low priced condos going into escrow and falling out of escrow, not just once, but 3 or 4 times before a sale "sticks". That means pending sales are inflated by properties in escrow with buyers that can't secure financing.
I am also seeing many people who wish to downsize at my condo and townhome Open Houses BUT they can't buy "until their single family home sells". If the sales of lower end housing, condos and townhomes, is further curtailed, (and I believe they are and will be) this will influence the currently stabilizing volume of residential sales even further down the road.
Of course no one gives a RA about volume except for the few of us tracking the market in this manner. Me, Lawrence Yun, Jonathan Miller, etc... care about volume. Everyone else cares about price! But whether or not price will fall slightly or more dramatically is influenced by volume stabilizing or falling again. If volume stabilizes, prices may fall 15% and stop. If volume slides out again, you could see prices falling by 35% or more. So tracking volume is the order of the day.
The end of the third quarter will give us a full 12 months of changed volume statistics. So for now, suffice it to see that the current market of the next 45 days is relatively stable as to volume in the single family home markets...but the other shoe may be ready to drop as evidenced by some red flags in the condo arena.
I won't wait until the end of September...we will continue to track this month to month through the 3rd quarter. Volume down is not what we are looking for. Volume down more than seasonal variances is what we are looking for.
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