May Reporting Roundup: Imaginary Market Stability Edition

Time for the monthly reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

Before we take a look at this month’s spin from the NWMLS, let’s have a quick refresher of what some local agents were saying just one month ago:

  • “While the tax credit has gone away, the buyers haven’t.” – OB Jacobi, NWMLS board member
  • “The home buyer tax credit did what it was designed to do; it helped with stabilizing the housing market which in turn helped stimulate economic recovery.” – J. Lennox Scott, chairman & CEO, John L. Scott Real Estate
  • “It’s exciting to see the stability of the real estate market continue to improve.” – Bobbie Chipman, NWMLS director & Coldwell Banker broker

Here’s what “buyers not going away,” and “stability” looks like:

King County SFH Pending & Closed Sales

And here’s what the NWMLS has to say for itself this month (not live yet, should be here soon): Home sales adjusting after surge before tax credits expired

Home sales during May tapered off around Washington state following a surge of activity in April as buyers hustled to meet deadlines for tax credits.

The chart above looks like what you would describe as “tapering off,” right?

“Leading up to its expiration, the tax credit caused a surge of home sales, but a surge can only be sustained for so long,” said Lennox Scott, chairman and CEO of John L. Scott Real Estate. “What we’re seeing now is a natural adjustment,” he explained, adding, “As consumer confidence continues to improve in the coming months, we expect to see the buyer pool replenish itself which should be followed by an increase in home sales.”

Keep in mind what Lennox said just three months ago about the tax credit:

The tax credit worked… We had a surge and then an unsurge of sales. We brought buyers forward by a couple months.

Even Mr. Scott admitted that the only purpose of the tax credit was to borrow demand from the future. Woo-hoo, it worked.

So what do the local papers have to say about this month’s release? Read on to find out.

Eric Pryne, Seattle Times: Home sales balloon in May thanks to federal tax credits

King County home sales, still riding the wave from recently expired federal tax credits, hit a post-bubble high in May.

But statistics released Friday by the Northwest Multiple Listing Service also suggest that wave has crested.

Buyers closed on 1,766 houses in the county last month, the largest number since August 2007, when the real-estate boom was just starting to go bust. Many May sales consummated contracts signed before April 30, the deadline for buyers to qualify for tax credits of up to $8,000.

But, with the credits no longer a factor, the number of new contracts signed in May plummeted. Pending sales — mutually accepted offers that haven’t yet closed — were 39 percent below April’s total, and 20 percent below the number recorded last May.

It was the first year-over-year decline since March 2009, and a signal that closed sales also could drop once the tax-credit-inspired deals work their way through the pipeline this month.

“The credit’s gone,” said Dahni Malgarini-Logar, associate broker at the Remax real-estate office in Renton. “We’re back to reality.”

Reality indeed. Mr. Pryne is being quite generous saying that the statistics “suggest” that a “wave has crested.” Of course, given how disconnected pending sales and closed sales have been recently, it’s better to err on the safe side when trying to read the tea leaves of the pending sales data.

Gerry Spratt, Seattle P-I: Pending home sales in Seattle tumble as tax credits end

Pending home sales of single-family homes in Seattle were down 38.45 percent in May compared with April, according to the latest numbers from the Northwest Multiple Listing Service.

The drop in pending sales, which are considered the best barometer for recent activity in the housing market, was expected as federal homebuyer tax credits expired April 30 and the economic recovery failed to pick up much steam.

Couldn’t you tell from last month’s NWMLS quotes how much they were expecting pending sales to fall? I mean, that’s obviously what they meant whey they said things were “stabilizing,” right?

“Since this was the first month in over a year without government encouragement to purchase homes, the decline in volume was not surprising, and aside from the median price decline in Snohomish County, the price changes were modest, suggesting price stabilization,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

Two problems here, Mr. Crellin.

First, there is still plenty of government encouragement to purchase homes. The government is basically providing the entire market for mortgages through Fannie, Freddie, and FHA. They’re still providing mortgage interest deductions. They’re still giving home sales a nice capital gains tax exemption. You cannot possibly describe the present environment as one “without government encouragement to purchase homes.”

Second, when you talk about median prices, you’re looking at closed sales data, which did not really decline in volume (see the above chart). We can’t really gauge price data on the reduced volume until the closed data drops off the cliff in a few months.

Mike Benbow, Everett Herald: Home sales in Snohomish County may drop off

Home sales in Snohomish County were good in May, but they’re expected to hit a serious slump this month now that the federal income tax break has gone away.

Agents sold 852 homes in the county last month, a nearly 28 percent increase from numbers a year ago. But pending sales dropped by nearly 32 percent, meaning a lot fewer deals will close in June, according to data released Friday by the Northwest Multiple Listing Service.

Yeah, home sales “may” drop off. It’s a possibility. Also, for what it’s worth, I don’t expect to see the sharp drop until July. Over the last couple years the trend of closed sales has roughly followed the direction and magnitude of changes in pending sales on a two-month delay.

“Staff,” Tacoma News Tribune: Area home sales slow in May

Lookie-loos are out touring again, after residential home sales stagnated in May, according to some local and state real estate agents.

“We had a very slow May, but now it’s picked up again,” said Tom Hume, a Realtor at Windermere Professional Partners in Tacoma. “I think it was a lull, the market was taking a breath.”

Rainy May weather kept people inside, rather than out looking at homes in what is traditionally one of the busiest times of the year, Hume said.

“Believe it or not, that affects if buyers get out there and look. If it’s raining, they want to stay home,” Hume said. “But it has picked up quite a bit.”

Awesome. I was hoping someone would try to blame the rain. The weather is the perpetual scapegoat whenever sales seem a little slow. It’s always the weather. Because people will put off the major life change of buying a house if the sun doesn’t come out for a couple of days. It’s a totally believable theory.

Rolf Boone, The Olympian: Pending home sales fall 30% in Thurston

Expired federal tax incentive programs for first-time and existing homeowners contributed to a sharp downturn last month in the number of pending sales, according to Northwest Multiple Listing Service data released Friday.

South Sound real estate professionals acknowledged Friday that pending sales here were affected by the end of the tax-credit programs; still, some argue that falling prices have had a larger effect on the market than the tax-incentive programs.

“The bigger driver is affordability,” said Ken Anderson, broker and owner of Coldwell Banker Evergreen Olympic Realty.

I agree that less expensive homes will drive more sales, but most of the boost we’ve seen over the past year has been thanks to the tax credit, as evidenced by the steep drop in pending sales once the tax credit disappeared.

(Eric Pryne, Seattle Times, 06.04.2010)
(Gerry Spratt, Seattle P-I, 06.04.2010)
(Mike Benbow, Everett Herald, 06.05.2010)
(“Staff,” Tacoma News Tribune, 06.05.2010)
(Rolf Boone, The Olympian, 06.05.2010)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

25 comments:

  1. 1
    deejayoh says:

    Tim – you should mark the fake expiration on there as well. That was the drop after November of last year, wasn’t it?

  2. 2
    The Tim says:

    RE: deejayoh @ 1 – Good call. I’ve added it on there. The original credit required deals to close by the end of November, so as one would expect, pending sales took a big dive after October.

  3. 3

    IMO, We Haven’t Seen Nothing Yet

    Now, I’m beginning to talk like Scotsman….LOL

    But add in the 30% of our oil, re: all Gulf offshore jobs butcher axed for now, South coast tourism killed with oil slick [Boeing airlines impact] and more unemployment….wait until this Fall for the really bad chart drops.

    A saving grace? BP is hiring cleanup crews who own a large boat or are hired by a captain of a boat [the captain/owner of the Coast Guard approved ship/boat gets $25/hr per worker, but the worker gets like minimum wage and oil fume sickness?]

    Article URL:

    http://blog.al.com/live/2010/05/job_available_for_oil_spill_cl.html

  4. 4
    ray pepper says:

    “We Haven’t Seen Nothing Yet” Agree 100%…….

    Sentiment towards owning a home has been harmed for a generation. Between taxes, insurance, upkeep, negative value, and 10% cost to sell the PRIDE of home ownership has been crippled..

    This will have a VERY negative effect on home appreciation for so many years to come.

    Lets all watch and learn together how truly ugly this can get. Bring on the next Stimulus !!

  5. 5

    RE: softwarengineer @ 3 – I don’t see tourism overall being affected. It’s not like people who were going to go to Florida are now going to just stay home.

    It will hurt the economy of the state’s directly impacted, and that will have indirect affect on other states as people in those states buy less. The biggest impact will probably be on the state budgets.

  6. 6
    Markor says:

    I’ll figure the market has perked up only after I’ve seen one house on my watch list of ~50 houses go pending. None have since April 30.

  7. 7
    Cara says:

    The droppoff looks impressive but I think the builder Scott has it right, this is just evidence of a displacement of contracts at the moment, not proof of a lasting fall-off.

    If you take April and May’s pending’s together they still average over February, but less than March. March looks pretty goosed too, and the average of the three months is well above February.

    Thus the underlying trend won’t be detectable for a few more months. If June’s pendings are down near May’s, then activity has been flat since winter, and we’ll have to wait until July to see how far out buyer’s were stolen from. If June pendings are noticeably above February, I’d say things have worked themselves out and are back to a slight upward trend befitting the season. If June’s pending’s are lower than May, it’s time to make a case for a crash in demand.

  8. 8
    ARDELL says:

    Tim said: “…instead of subjecting yourself to boring rehashes of the NWMLS press release…”

    I find myself wondering if removing an mls member’s ability to produce meaningful and potentially contradictory to press release stats…was intentional. The new system limits home price median calculations to no more than 100 properties. I can no longer “double-check” the press release numbers or produce any meaningful data that requires the study of more than 100 properties in the mix.

    Am I being overly paranoid about that? Is it purely coincidental that the “new” and improved mls system, removed that ability from its membership?

  9. 9
    SeattleMoose says:

    Still got a ways to go before price drops are done. This fall will be brutal. In the meantime it is good to see that some things never change….like the “no conflict of interest here” quotes from RE “experts” who still haven’t learned that it is actually better NOT to lie to the public.

    No matter now as the RE industry has as much credibility left as BP execs who are clueless as to how to deal with anything except cashing their huge bonus checks.

    All these types are best summed up by the old “how do you tell if X is lying…..because their lips are moving” joke.

  10. 10
    Coloradoan says:

    RE: Cara @ 7
    I think you’re overthinking things.

    I gaurantee you June’s pendings will be lower than February’s. For the average person, the tax credit was a big incentive to buy even though most of the readers of this blog understand that it is negated by even a slight drop in housing prices.

    Many will be surprised by just how much future demand was stolen

  11. 11

    RE: ARDELL @ 8 – They claim they are working on statistics, and clearly adding statistics isn’t more important than say adding hits.

  12. 12

    RE: Kary L. Krismer @ 5

    Actually, Per Gallup Poll, It’s the Opposite, Kary

    Article in part:

    “…A recent USA Today/Gallup Poll has come up with depressing news for those who believe that the effects of the financial crisis can solely be attributed to the last year. The U.S. is a huge market and the poll suggests that its inhabitants are going to travel less this year than in 2009, on both corporate and private levels…”

    http://www.tourism-review.com/americans-to-travel-less-in-2010-news1994

    Now….add in south coast oil fumes and its worse than this Dec 2009 article.

  13. 13

    RE: softwarengineer @ 12 – I was just addressing the oil spill effect, not whether travel would be up or down overall.

    I guess it is possible that someone might cancel a Florida trip and then not reschedule after thinking about their finances. But the thing is, having the Gulf Coast suffer a tourism decline could cause other places to have a better year than expected even if overall travel is down.

  14. 14
    ARDELL says:

    RE: Kary L. Krismer @ 11

    Kary,

    I don’t think they can “add hits” in a meaningful way. The new hit count will only show that it came up on a broad search, which tells us nothing. The old “hit count” noted when the agent opened it out of the broad search, which was of value.

    Be careful if they “add” a hit count feature…that they also tell us what “hit” in it’s changed version…means. My guess is it will not mean what it used to mean. Trying to make the new system “do” what the old one did…does not necessarily duplicate the usefulness of the feature as it was previously known.

  15. 15

    RE: ARDELL @ 14 – That’s a good point, unless a hit only counts if the view is “full” or “full w/ Realist.” Maybe they should have a pictures hit feature?

  16. 16
    CCG says:

    By ARDELL @ 8:

    Tim said: “…instead of subjecting yourself to boring rehashes of the NWMLS press release…”

    I find myself wondering if removing an mls member’s ability to produce meaningful and potentially contradictory to press release stats…was intentional. The new system limits home price median calculations to no more than 100 properties. I can no longer “double-check” the press release numbers or produce any meaningful data that requires the study of more than 100 properties in the mix.

    Am I being overly paranoid about that? Is it purely coincidental that the “new” and improved mls system, removed that ability from its membership?

    Next thing you know, you’ll be reading Zero Hedge ;-)

    Anyway, after reading this, I’ve decided there’s no such thing as “overly paranoid” any more. Yes, Virginia, they really are out to get you.

  17. 17
    HappyRenter says:

    I wonder how the drop in pending/closed sales will affect the stock market in the coming months. The market crash in late 2008 was a result of the real estate crash a year earlier. Who knows whether it repeats. Right now the stock market is going down again but that’s mainly due to the worldwide economic crisis. The increasing amount of foreclosures might add some more strain to the market.

  18. 18
    ARDELL says:

    RE: Kary L. Krismer @ 15

    Some people use “full w/tax” as the default or regular view. I do. So hits to “that” are not hits like the old version either.

  19. 19
    ARDELL says:

    I also noticed that the King County Parcel Viewer has stripped out a lot of information that used to show there. You can’t see historic values or taxes anymore. Not sure if you can even see the current taxes.

    Anyone else notice these changes?

  20. 20
    S-Crow says:

    Ardell & Others: King County Tax Records. This is the link to get all tax information.

    Values can be researched via Deeds, Excise tax, etc..

    If you can’t get access to specific records, contact your local escrow firm.

  21. 21
    ARDELL says:

    S-Crow

    That seems to only work for the owner of the property…no? I used to be able to see prior year assessed values and taxes due for most any property.

  22. 22
    Scotsman says:

    Market stability? This yahoo is calling for 80% off peak pricing and says “don’t get attatched to your home- you will lose it.” I’m not sure how that works, but he does have some interesting graphs near the end:

    http://www.youtube.com/watch?v=py4QZ9hXLlo

  23. 23
    BillE says:

    By Scotsman @ 22:

    Market stability? This yahoo is calling for 80% off peak pricing and says “don’t get attatched to your home- you will lose it.” I’m not sure how that works, but he does have some interesting graphs near the end:

    http://www.youtube.com/watch?v=py4QZ9hXLlo

    Pretty sure I heard an ice cream truck in the background. Jim The Realtor woulda been all over that.

  24. 24
    Cara says:

    By Coloradoan @ 10:

    RE: Cara @ 7
    I think you’re overthinking things.

    I gaurantee you June’s pendings will be lower than February’s. For the average person, the tax credit was a big incentive to buy even though most of the readers of this blog understand that it is negated by even a slight drop in housing prices.

    Many will be surprised by just how much future demand was stolen

    “gaurantee” is a very strong statement. My point is that until June comes out we can’t yet know what the underlying trend is. If however, you are certain that June will be lower than February, then you indeed already have your answer. But there’s a few things to consider. Traditionally, first-time buyers make up less than, what, 1/4? 1/3? of the transactions? So the number of people waiting until the euphoria is over before getting into the market may not be negligible. Who that wasn’t eligible for the bribe would have wanted to compete with those that were?
    Second, there is a limit to the extent that buyers _can_ adjust their time frames to buy during the credit. You still need to have a 12 month job stability (at least), the DP and closing funds ready, some plan in place for leaving your rental, money for moving even if Uhaul + pizza for friends. The pent-up demand leftover from the years upon years of inflated prices can buy whenever it wants, but the new entrants can probably only adjust by a few months. Thus if demand does crash and doesn’t return within 2-3 months, then that’s actually evidence for the existence of a large pool of prudent renters who sat out the bubble, and thus had the ability to adjust their time frames for the tax-credit. Which is interesting in and of itself.

    Seattle has a lot of air left to deflate and it’s timing is well behind the national timing, so quite possibly you’ll be proven right, and June will be under February. But until those numbers are out, I think using a moving average is prudent rather than declaring a crash in demand, when all we know for sure is that April stole from May.

  25. 25
    CCG says:

    By Scotsman @ 22:

    Market stability? This yahoo is calling for 80% off peak pricing and says “don’t get attatched to your home- you will lose it.” I’m not sure how that works, but he does have some interesting graphs near the end:

    http://www.youtube.com/watch?v=py4QZ9hXLlo

    Nonsense. A minimum 2000 sqft tract castle is your birthright as an American, at no cost, to be paid for with money stolen from savers, taxpayers, and your great-great-great-grandchildren if necessary.

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