The Housing Chronicles Blog: Why was there an April bounce in home sales?

Tuesday, May 27, 2008

Why was there an April bounce in home sales?

Just when you're getting ready to (perhaps) celebrate the April bounce in new home sales activity, a story at comes along to spoil the fun, calling the signs of rising resale inventories "ominous" (hat tip to

The inventory of unsold homes on the market jumped 10.5% in April to 4.55 million units. At the current sales pace, that represents an 11.2-month supply of houses -- nearly double what the real estate industry considers to be a health level.

Of course, April is the biggest time of the year for putting houses on the market. That's because of the school-year cycle; families with kids in school who need to move in the June-August summer recess have to get their homes on the market then in order to sell, buy and close on both transactions before the fall term begins.

But even by seasonal standards the number of houses put on the market last month was high. And here is why that is particularly ominous:
  • Many of those potential sales are likely forced. Strapped homeowners who are struggling to keep up with mortgage payments may feel compelled to sell and get what they can for their house before the financial burden overwhelms them.
  • Many of those houses are foreclosures. With foreclosure proceedings nearly double what they were a year ago, banks are being handed the keys to record number of properties. Their aim is to get rid of them, regardless of market conditions.
  • Many of these moves are not discretionary. Let's face it: The job market is not the most stable right now. Folks who face layoffs or are "asked" to transfer may have little choice but to put their home on the market.
  • Many of these properties are failed investments. The speculators who bought -- mostly condos -- in the boom times in anticipation of quick profit have been caught with their windows down. They may have been tempted to hold for a rebound, but like stock traders they will also cut and run with no bottom in sight.
Some of the folks who put their houses on the market in April may end up pulling them off the market in subsequent months, once they see how choppy the water really is. But for most, it's now sink or swim.

No comments: