Real Estate related data and its relationship with Economy.

I have posted about Real Estate Risk Index last week. This report also had very interesting analysis regarding real estate data and its relationship with economy.

A figure denoted with a plus sign means that the trough in that measure occurred after the end of the recession – with the number signifying the number of months past the economic trough. A minus sign denotes a bottom before the end of the recession. A minus sign denotes a bottom before the end of the recession. In every case, each of the housing-related measures bottomed before the end of the recession, with single-family existing sales averaging four months, new sales eight months, and single-family starts seven months. Job-related data, on the other hand, at best are contemporaneous with the end of an economic downturn, but more often lag the economic trough. Moreover, in each of the past two recessions, the national unemployment rate didn’t peak until more than a year after the recession ended.

Unemployment： +6 month
Payroll Employment： +4 month
Existing Home Transaction： -4 month
New Home Transaction： -8 month
New Housing Starts：-7 month

Based on this analysis, let's look at the most recent data as follows:

1. Existing Home Transaction

- Below is the data to February 2009. Compared to January 2009, # of transactions has increased by +8.9%, but, compared to February 2008, it has declined by -10.3%. It is possible that January 2009 is the bottom of the market but we have to continuously monitor this number. Realtor.org will introduce March 2009 number on April 25th 2009.

- Far right figure is Inventory/month (how long it takes to sell existing "for sales" properties). It is good to know that inventory has declined from peak 11.3 month but it has long way to "healthy balanced market" of 6 month inventory. As rush of foreclosure will continue and there are massive shadow inventory, I believe price will continue to decline for a while.


Year Month Transaction Inventory/Month
2008 Feb 312,000 9.7
2008 Mar 375,000 10.0
2008 Apr 434,000 11.3
2008 May 483,000 10.9
2008 Jun 504,000 11.0
2008 Jul 504,000 11.0
2008 Aug 489,000 10.6
2008 Sept 438,000 10.1
2008 Oct 413,000 10.2
2008 Nov 322,000 11.0
2008 Dec 361,000 9.4
2009 Jan r 257,000 9.7
2009 Feb p 280,000 9.7
vs. last month: 8.9%
vs. last year: -10.3%

2.　New Home Transaction

- While it has dropped to 27,000 units in Feburuary 2009 (-44% declined compared to February 2008), it has increased by 17% compared to January 2009. It maybe bottomed in January 2009 though continuous monitoring of the future data is required.

- Regarding inventory, it has gone down t0 12 month (from peak of 14.6 month). It has long way to go down to 6 month "balanced" market inventory. Thus price is likely to go down for a while.



Year Month Transaction(,000) Inventory/Month
2008: February 48 9.9
2008: March 49 9.5
2008: April 49 9.3
2008: May 49 9.3
2008: June 45 9.6
2008: July 43 9.8
2008: August 38 10.8
2008: September 35 11.4
2008: October 32 12.0
2008: Novemberr 27 13.6
2008: Decemberr 26 13.6
2009: Januaryr 23 14.6
2009: Februaryp 27 12.0
Vs. Feb 2008 -44%
Vs. Jan 2009 17%

3.　New Home Starts (1 unit only)

- It has gone down to 21,800 units in January 2009 but start going up in February/March 2009. The bottom maybe hit in January 2009.

- While I will post separate analysis, as of today, it is said that 3 million to 5 million excess units exist due to over-building of bubble era. While this many excess inventory exists, I do not see major recovery in housing starts for 2-3 years.


Month Year Starts (,000)
Jan 2008 47.5
Feb 2008 47.5
Mar 2008 53.6
Apr 2008 62.7
May 2008 61.1
Jun 2008 58.7
Jul 2008 55.0
Aug 2008 47.4
Sep 2008 45.3
Oct 2008 39.9
Nov 2008 25.9
Dec 2008 24.2
Jan 2009 21.8
Feb 2009 25.9
Mar 2009 32.1
Vs. March 2008 -40%
Vs. Feb 2009 24%

To summarize, housing market's bottom may be hit in January 2009 while this has to be verified by March/April results. This may mean that economy may hit bottom in June - August 2009.

However, hitting bottom does not mean rapid recovery of housing market.

Do you think Unemployment and Payroll Employment start increase in late 2009 / early 2010?

Happy Investing!!!!!