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Last Time this Happened, the Housing Market Crashed

Homebuilder KB Homes, when it reported earnings for the quarter ended August 31, revealed that the average price of the homes it sold rose 9% to $327,000. In the West, prices jumped by 20% to $579,700. With these juicy price increases, sales in dollars were up 7% from a year ago. But the number of homes it sold actually declined by 2%. That’s how the housing market in America operates these days – even at the high end where KB Homes operates.

At the same moment, the Commerce Department reported that new home sales suddenly jumped by 18% in August from July, and a breath-taking 33% from August last year, after having been in the doldrums or declining for months (PDF). But the margin of errors are elephantine (±16.3% and ±21.7% respectively), so a grain of salt comes in handy.

With such an enormous jump in sales, if it doesn’t get revised back down next month, you’d think that inventories of homes for sale would have been drawn down during the month. On the surface, that happened: supply dropped from 6 months to 4.8 months. But…

The actual inventory of new homes still for sale at the end of August, despite the burst in sales, rose 2% to 206,000, from July’s 202,000 – and was up 16% from August a year ago. August and July were the only two months in the 12-month period when inventory was over 200,000 new homes. Among these homes, the inventory of “completed” homes – rather than “not started” and “under construction” – jumped 23%. These homes, despite the presumed spurt in sales, are stacking up!

Now RealtyTrac found that sales of all residential properties – single family homes, condominiums, and townhomes – in August dropped 0.5% from the already dismally low level of July to an estimated annual pace of just over 4.5 million. Year over year, a 16% plunge!

Until mid-2013, the annual rate had been rising toward 5.5 million homes. Investors had been scouring the hottest markets, buying up homes by the thousands, and driving up prices in the process. But they succeeded so well in driving up prices that their equation wasn’t working anymore. And they walked. What was left was a toxic mix [read…. After Mucking up the Housing Market, Investors Flee].

Mid-2013, everyone thought the housing market was once again entering the paradise of eternally rising prices and rising sales. But in the fall, the hot air started hissing out of it. Sales spiraled down, amidst a slew of now ludicrous industry excuses.

 

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