By AUSTIN NELSON

The National Association of Realtors released figures on existing home sales for December, showing an “unexpected” rise in sales volume for the month. Across the US, data showed a 6.5% increase in volume month over month. The surprise increase was bittersweet however, as median home price declined almost 3% month over month and were down 15.3% for all of 2008.

The Western region led both these trends last month, showing a 13.6% increase in sales volume and an 11.6% decrease in median sale price. Furthermore, in 2008 the West saw a 31.6% increase in sales volume and a whopping 31.5% decrease in median sale price. (Click here for more on median sales price figures compared to average prices.)

While this month’s data could simply be a small bump on the otherwise sharply downward roller coaster ride of residential real estate, in the West region at least it is indicative of a trend. As home prices “bottom” out or at least hit lows not seen in a decade, homes start to actually become affordable for the people who live in the area. Combine that with more favorable lending conditions and voila!, you’ve got an increase in sales volume.

This trend is even more accentuated the more you drill down to individual neighborhoods. We have seen neighborhoods in the San Francisco Bay Area that are seeing two fold increases in sales volume as prices reach affordable levels. Indeed, the further the drop in price, the more likely an increase in sales volume will be seen.

The important thing to keep in mind here is that prices are still continuing to drop even amidst the increasing volume. So even though your neighbor successfully sold his house in time to avoid foreclosure, you will likely end up selling yours for less. This is a result of the continued high levels of short sales and foreclosures that are flooding the market. Even with increases in buying activity and eligible buyers in the market, there are still enough properties for sale that the buyer can afford to be a stickler about price.

With that in mind, perhaps the most important number to watch is the housing inventory, which is simply a value calculated by taking the number of homes currently on the market and dividing it by the rate at which homes are being sold (seasonally adjusted, of course). This gives you the approximate time it would take to sell every home currently on the market (assuming the rate stayed the same and no new homes came on the market). That number was on the rise through the middle of last year but seems to have stabilized.

If this month’s data is an indicator of a future downward trend in inventory it could be the first true sign of improvement on the horizon. The question is, how far away is that horizon? And, given the current state of the US economy and banking system, will that improvement have staying power?

In the short run, savvy investors can take advantage of the increased liquidity in the housing markets by buying at a discounted rate and selling right back into the increasing demand. This will require careful analysis of the sales trends for a particular area as well as precise valuation of any property under consideration.

By RYAN TAYLOR

Hardly anyone, it appears, is interested in buying a new house.

The commerce department reported this morning sales of new single family homes decreased by 5.3% in October to a seasonally adjusted annual pace of 433,000. That’s the lowest level since 1991. Sales are down a whopping 40.1% from October 2007 and the total housing supply reached 11.1 months. Most economists consider 6-7 months of supply to be healthy.

The news was not much better for new home values: Prices fell 12.2% to an average price of $272,300, down from $310,000 in October of last year. The month-over-month drop was particularly dramatic, down from $283,700 in September – that’s almost 5% in a single month.

In contrast, the median price fell to just $218,000, down from $234,300 last year. This gap between average and median prices indicates that more cheap homes are selling than expensive ones. Recent data show distressed properties make up almost half of current transactions, as investors try to snap up foreclosures at fire sale prices.

Meanwhile, higher priced homes are sitting on the market. Jumbo loans are increasingly  tough to get and many sellers are unrealistic about asking prices.

While activity nationwide fell steeply, regional data were mixed:

• Northeast: +22.6%
• Midwest: +6%
• South: -6%
• West: -18%

There are a few things that can be derived from these numbers.

First of all, markets that experienced the greatest appreciation from 2002-2005 are continuing to experience significant declines in new home sales. Florida, California, Arizona and Nevada were the boom states for many of the homebuilders at the peak of the market and they are now the most depressed areas.

Since the boom in the new home market was fueled by investors and speculators, homebuilders kept on building. Lax mortgage requirements created a seemingly neverending supply of buyers. Now that demand has dried up due to tighter credit markets and falling prices, builders are left sitting on huge inventories of homes as well as vacant land. Land was cheapest in the exurbs, well outside town, and job losses and a weakening economy are particularly damaging to these fringe developments.

Supply is out of control in the South and the West, but the Northeast and Midwest are experiencing strong buying activity as prices return to more affordable levels. Some areas, like Bloomington, Indiana and Lubbock, Texas are even seeing home prices rise.

Qualified and willing buyers have many homes to choose from right now. Few are opting to live far away from job centers, especially when those markets are the most distressed.

Despite slick marketing campaigns, giveaways and slashed prices, any prospective buyer still faces the very real risk of losing money on a new home starting the day you move in. This is a risk few should be willing to take with the roof over their family’s head.

By AUSTIN NELSON

Existing home sales fell again in October, reversing gains seen in September. The National Association of Realtors, or NAR, released October existing home sales data today, which show decreases in units sold as well as median sale price across the country. The annual price decline was the worst on record, continuing the worst housing slump since  the Great Depression.

Nationally, existing home sales fell a seasonally adjusted 3.1% month-over-month, representing a 1.6% drop from a year ago. In September, sales improved from last fall’s atrocious levels – data the NAR pointed to as a sign of stabilization in the housing market. This assessment appears to have been premature. October’s decline in sales is more in line with the current economic climate of rising unemployment and severe home equity losses.

Sales were down throughout the country:

• Northeast: -1.2% m/m, -9.8% y/y
• Midwest: -6.0% m/m, -9.1% y/y
• South: -3.2% m/m, -10.2% y/y
• West: -1.6% m/m, 37.5% y/y

A few of these numbers are worth singling out.

First, the Midwest was hardest hit, evidencing the fallout from the troubles with the automakers. Second, sales in the West fell, following improvment in September. Again, the NAR had pointed to last month’s gain as an indicator of market health, claiming the West’s markets were showing renewed strength after being the hardest hit to date. The decrease last month shows that this “renewed strength” is typical NAR spin: Even drastic reductions in home prices could not stimulate sales growth in the region.

The figures released on median home sale prices are perhaps even more revealing as to the current state of the housing market.

Nationwide, home prices tumbled 4.2% month-over-month. The largest drop was seen in the West, which saw a dramatic 9.3% decrease. This decline came in the context of a market that had already seen 25% lower home prices than the peak in 2006. Markets in regions that have thus far held up better should expect continued deterioration if they follow a similar trend.

From a “rosier” perspective, this large drop in median price was due at least in part to the paralysis in credit markets over the last two months. The restriction of credit to the private mortgage market dramatically reduced the availability of jumbo loans – which are not backed by the government – preventing buyer’s from bidding on expensive homes.

As a result, the mix of homes sold in October was likely skewed towards the cheaper properties that are available for purchase using loans offered by Fannie Mae, Freddie Mac and the FHA. This concentration of lower priced homes helped push down the broader, median home price data reported by the NAR. As credit markets improve, albeit slowly, this effect should ease pressure on the broad indicators.

Rosier perspective aside, further nationwide declines in home prices and sales should be expected, as  economic conditions continue to erode. However, as the earth-shattering financial events of the past few months play themselves out, it will be important to watch the West as a bellwether of national markets.

The West has led the way in declines thus far, so it is reasonable to look to this area as a proxy for how economic hardships will affect other regional housing markets. Furthermore, as the West has seen the lion’s share of the market pain thus far, signs of true stabilization should appear there first.

Finally, it is important to note that regional economic numbers can conceal even the largest of local trends. Within local Western real estate markets, conditions are widely varied, with some markets only beginning to decline and others beginning to show truly renewed strength.

Only time, and feverishly detailed scrutiny will allow effective market analysis in these unpredictable and volatile times.

By AUSTIN NELSON

The Commerce department released its latest figures for housing starts in the month of October, providing further evidence of an American economy in very poor shape.

Starts for the month came in at a seasonally adjusted annual rate of 791,000, down 4.5% from the previous month. Furthermore, permits for future construction fell 12% to 708,000, indicating that further declines in construction should be expected. The decline is housing starts represented a 38% decrease from last year. Housing starts dropped by 25% from 2006 to 2007, meaning these further declines compound troubles for an already depressed market.

These numbers are the latest in a series of indicators of the continued decline of the U.S. housing market. There are simply not enough qualified buyers to soak up the enormous supply that is being seen nationwide. In the current climate of falling home prices and tighter credit standards, homebuilders cannot attract buyers to purchase their newly constructed homes. With less cash coming in the door, they can’t afford to break ground on new projects.

Drilling down more deeply into the numbers, October’s declines are largely a result of a 31% month-over-month decrease in starts in the Northeast region, where real estate markets have more recently begun to decelerate. This trend is also evidenced by recent surges in pending home sales in the West, while the Northwest is starting to lag.

The data is further evidence the drastic declines of western real estate markets are beginning to spread eastward across the country (Florida notwithstanding). Markets that have previously been strong are now showing signs of weakness and should be expected to continue this trend. Declines in spending within the construction industry are adding drag to the already slowing U.S. economy, which will further decrease the demand for housing.

As we commented yesterday, consolidation in the homebuilder industry isn’t just likely, its inevitable. Just as stronger banks are scooping up their weaker rivals, so too will the “cream” of the homebuilder crop rise to the top of the market.