February 21, 2014

Existing-Home Sales Drop Despite Double-Digit Increase In Inventory

A year ago today, the chief economist for the National Association of Realtors, Lawrence Yun, cited "plenty of demand but insufficient inventory" as the reason for a lackluster up-tick in home sales across the country.

While the number of existing homes on the market is now 10.9 percent higher on a year-over-year basis, existing-home sales last month were 5.1 percent lower versus the year before, their lowest level in a year-and-a-half on a seasonally adjusted basis.

Continuing to cite limited inventory as a reason for the decline (despite the double-digit increase in the number of homes for sale), increasing interest rates, higher prices, and disruptive weather patterns also shared the blame for the slowdown this time around.

Existing home sales in the West were down 13.7 percent in January, year-over-year.

First Published: February 21, 2014 2:00 PM

Comments from "Plugged In" Readers

Let me get this straight: NAR claims limited inventory is the reason for the decline in sales, even though inventory had a double-digit increase?

Makes sense to me!

Hopefully Ben told Janet where he left the keys to the helicopter!

Posted by: two beers at February 22, 2014 11:08 AM

At this stage, this has a stark disconnect from the local SF market.

T(ipster)wo Beers, great call on how tech was a nothingburger. You really crushed it.

Posted by: Truth at February 23, 2014 12:13 PM

1. I'm not tipster.

2. You're right: I didn't anticipate that the Fed would spend trillions of dollars to buy up all of Wall St's toxic MBS, and that Wall St would pump much of this free money into internet companies that have no hope of ever turning a profit.

As long as the Fed pumps up Wall St, and as long as Wall St pumps that money into "tech," things are rosy for SF RE.

Do you think this Ponzi scheme will last forever, and what do you think happens when it ends?

Posted by: two beers at February 23, 2014 12:44 PM

"Ponzi scheme" lol. I do not think you know what that term means...

You do know who creates dollars, right?

Posted by: anon at February 23, 2014 2:34 PM

Sure you aren't. And great job telling this site how you knew it, just knew knew knew that SF was in big trouble, because VC was drying up. I mean, could you have been more utterly wrong? As for "Ponzi scheme," round hole square peg.

Posted by: Truth at February 23, 2014 4:22 PM

One has to begin to feel SOME caution when 16 BILLION is paid for an app that has never made any profit.

Posted by: however at February 23, 2014 4:24 PM

I agree. It feels very bubbly. 1300 dollars per square foot ob the Mission, and that's normal? But it seems like people are only using the internet more, not less. Where are the headwinds going to come from? Will the Excelsior gentrify before the next downturn? Enquiring minds want to know.

Posted by: Truth at February 23, 2014 4:32 PM

@anon: sorry, I don't understand your incoherent non-sequitor, lol.

Unregulated MBS, CDO, and CDS are the essence of Ponzi scheme. Maybe you slept through 2008?

Are you saying that the only way dollars are created is through fraudulent investment schemes? lol.

Posted by: two beers at February 23, 2014 6:18 PM

@"truth"--

So you knew knew knew Bernanke would hollow out the rest of the economy to save Wall St and RE? You knew the Fed would spend $85 billion per month for several years to suppress interest rates and buy up all the toxic MBS? Really, you knew knew knew that?

In that case, you admit that the economy is a fixed game, rigged to benefit insiders and asset-holders no matter how destructive that action is to the economy as a whole.

Your idea of capitalism is for the government to bail out the wealthy when they f*ck up and their massively-destructive mistakes threaten to take down the global economy?

Nice economy you got there!

Posted by: two beers at February 23, 2014 6:31 PM

No. I'm saying that the Fed can create an infinite amount of money out of thin air at any time. The Fed can't "spend" money in the way that you're thinking.

Posted by: anon at February 23, 2014 7:49 PM

anon: Of course the Fed can create as much as money as it wants. That's the basis of my argument. How does that negate my contention that the current RE bubble is a consequence of the Fed bailout of Wall St after the collapse of the last bubble?

Posted by: two beers at February 23, 2014 10:06 PM

A Ponzi scheme refers to a situation where money is being paid out with money that is coming in, without there ever being the possibility that all investors who pay in can ever be paid out. Since it's literally impossible for the Fed to run out of money, your analogy makes zero sense.

Posted by: anon at February 24, 2014 6:46 AM

anon: I know the Fed has no practical constraints. But you're implying the Fed will never decide (or less likely, be compelled)to end its massive monthly gift to Wall St (the gift that created this housing bubble). The Fed has already scaled back 25% on QE2.

What you're saying is that this multi-asset bubble will never end, because the Fed will never stop pumping up Wall St.

Hmm....nice economy you got there.


Posted by: two beers at February 24, 2014 11:36 AM

Ah, so you're a goldbugger longing for the days of deflation. Got it. For the sake of the unemployed, I really, really hope you're wrong.

Maintaining steady NGDP growth is not "pumping up Wall St" any more than allowing NGDP to plunge in 2008 was "teaching Wall St a lesson".

Posted by: anon at February 24, 2014 4:01 PM

Sorry, but I'm a Keynesian, the dead opposite of a goldbug.

Monetary stimulus has its role, but endless zero-bound monetarist masturbation to the near-exclusion of fiscal stimulus only helps speculators, and HURTS employment for those in actual productive industries.

You just want to keep giving money to rich people, who will keep blowing bigger and bigger asset bubbles. The FIRE industry wealth extraction Ponzi scheme might be good for you, but it's a disaster for the vast majority of Americans in the business of being productive.

Nice fake economy you got there.

Posted by: two beers at February 24, 2014 4:26 PM

I wouldn't call Keynesians "dead opposite" of goldbugs. You yourself admit to wanting to end monetary stimulus when we still obviously have ridiculously tight money.

I'm fine with fiscal stimulus when monetary policy is no longer working. As we've seen from this past year (drastically falling unemployment rates even in the face of fiscal headwinds), we could've ended this recession before it started in 2007/early 2008 by simply not allowing ourselves to let the Central Bank tighten money to such an insane extent.

I'm a big believer in not letting the need for fiscal stimulus come into being in the first place, by having appropriate monetary policy (gigantic fail in 2008) and automatic fiscal stabilizers in place (ok job there, but more large upfront unemployment benefits would be better than crappy but long in duration benefits, IMO).

Posted by: anon at February 24, 2014 6:01 PM

Put the Milton Friedman down and walk away slowly.

ZIRP is ridiculously tight money? wtf?

Posted by: two beers at February 25, 2014 9:22 AM

I don’t normally agree with “two beers”, but the “print to prosperity” position isn’t very sensible.

“A Ponzi scheme refers to a situation where money is being paid out with money that is coming in, without there ever being the possibility that all investors who pay in can ever be paid out.“

Pedantically maybe, but in reality money is just a claim on goods and services so it is reasonable to consider if actual real productivity is increasing fast enough to honor the claims being created.

“I'm saying that the Fed can create an infinite amount of money out of thin air at any time.”

This is a classic self-defeating argument. The only reason money has value is because people, correctly, believe that the Fed won’t simply go and create an arbitrary amount.

Any country in the world can simply print an infinite amount of money and yet plenty of countries have all sorts of economic troubles. So clearly the ability to print money is not sufficient.

From an absolute scale, I don’t think things are as grim as two beers seems to think. And I think that what he calls the FIRE industries can and do provide useful functions. I just think the path forward needs to focus on fixing real past problems and creating new productivity, not just a “print to prosperity” mindset.

Posted by: anon2 at February 25, 2014 10:49 AM

Ah, so the inflation is just around the corner argument. It's not a print to prosperity argument, it's an argument to maintain stability in NGDP growth rather than let it fall through the floor as we have over the last five years (we're doing better over the last year, but but wow 2008 was a disaster).

ZIRP is ridiculously tight money? wtf?

Interest rates are meaningless in determining whether money is tight or loose. Are you suggesting that we had "super tight" money in the 70s when interest rates were high and the money supply (and inflation) were increasing like mad?

Posted by: anon at February 25, 2014 11:15 AM

Goldbugs? Inflation around the corner? You seem to jump to a number of strange conclusions.

“an argument to maintain stability in NGDP growth”
But how? Increase the actual production of the economy? Fund useless activities just to hit a RGDP target? Or just print money to hit a NGDP target?

Any country in the world can just pick a NGDP target out of thin air and then just print money to have their NGDP grow at that rate. It should be obvious why this isn’t a path to prosperity.

Making up a NGDP target and printing just to hit it is just juking the stats. Imagine if an RE agent from an inland empire town still reeling from the downturn came to SF and saw how all the open houses are packed. Instead of looking into why SF is more desirable and doing better, he just notices the correlation between packed open houses and a healthy RE market. So he goes home and hires actors to attend his open houses until they have the same attendance as the ones in SF. Do you think his town will become the next SF?

Posted by: anon2 at February 25, 2014 11:36 AM

Any country in the world can just pick a NGDP target out of thin air and then just print money to have their NGDP grow at that rate. It should be obvious why this isn’t a path to prosperity.

Then why isn't it obvious? Japan has begun to do this over the past year and seen its best economic performance in two decades.

Why is this "juking the stats", but picking an interest rate to target out of thin air is not?

And no idea why you're bringing up RGDP. That's an element of the real economy that may or may not have bearing on proper monetary policy. Increasing production or funding useless activities to hit RGDP targets would be fiscal policy. We're talking about stable monetary policy. The disaster of 2008 was a failure of monetary policy.

Posted by: anon at February 25, 2014 11:45 AM

You have to get beyond your Manichean economic paradigm. I'm not an inflationista, quite the contrary. We are going to see asset deflation, while Chicago School clowns who make the decisions will once again try to prop up the falling assets, while hollowing out the actual productive economy.

To your school of thought, all that matters is Wall St and wealth extraction; Main St and actual productivity are just an afterthought.

For Friedmanites, when times are good, you give money to banks, and when times are bad, you give money to banks. It's all they know how to do.

Posted by: two beers at February 25, 2014 12:22 PM

Good god, supporting proper monetary policy has nothing to do with "giving money to banks". You're so consumed with making sure that no money goes to banks that you're willing to endure years of additional deflation just to stick it to them.

Maintaining healthy NGDP growth has NOTHING to do with "propping up assets". It has to do with, you know, maintaining healthy NGDP growth. I've got no issue with enacting laws and regulations that prevent Wall Street wealth extraction, but that has little to do with preventing deflation and nothing to do with the ZLB.

Posted by: anon at February 25, 2014 3:37 PM

“Maintaining healthy NGDP growth has NOTHING to do with "propping up assets". It has to do with, you know, maintaining healthy NGDP growth.”

There’s your problem. You want to juke the stats in order to, you know, have the stats look good.

The real economy is what ultimately matters. Banks and the FIRE industries are useful to the extent they help the real economy.

If you have structural problems in the real economy which cause a drop in RGDP and your answer is to print the problems away to maintain NGDP, what happens? More money increases the size of the banking sector which attracts more of the best and brightest away from the real economy. The talent drain further impacts RGDP, so you need to inflate even more to maintain NGDP,… etc etc

If you’re the Mayor of Dumpsville your efforts are best spent fixing why people don’t want to move into your town, not paying actors to show up at open houses. If you fix the real economy, the stats will follow. But if you fix the stats it won’t help the real economy.

Posted by: anon2 at February 25, 2014 4:12 PM

I'm saying that you can't fix the real economy if you're allowing NGDP to plunge. Stabilizing NGDP growth is the FIRST thing you have to do, then you can do whatever else is needed to fix the real economy.

You're suggesting that we fix the bathroom sink while the whole house is on fire.

Posted by: anon at February 25, 2014 4:45 PM

You have to get beyond your Manichean economic paradigm. I'm not an inflationista, quite the contrary. We are going to see asset deflation, while Chicago School clowns who make the decisions will once again try to prop up the falling assets, while hollowing out the actual productive economy.

To your school of thought, all that matters is Wall St and wealth extraction; Main St and actual productivity are just an afterthought.

For Friedmanites, when times are good, you give money to banks, and when times are bad, you give money to banks. It's all they know how to do.

Posted by: two beers at February 25, 2014 4:48 PM

Keep in mind, when I say stabilizing, I mean it. That means keeping NGDP growth from collapsing as it did in 2008, and also keeping it from accelerating out of control, as it did in the late 70s.

Posted by: anon at February 25, 2014 4:51 PM

Housing bubbles aren't a 12-month phenomenon. This one has 18+ more months to run before all the dumb money has been vacuumed up. The amateur investors are already engaged in wild all-cash bidding wars in Modesto. Isn't that a perpetual sign of the apocalypse?

Posted by: Jimmy The House Flipper at February 25, 2014 5:34 PM

LV was similar late last year. Emphasis on "was".

Posted by: lol at February 25, 2014 6:33 PM

"Stabilizing NGDP growth is the FIRST thing you have to do, then you can do whatever else is needed to fix the real economy."
"Keep in mind, when I say stabilizing, I mean it."

But since you can hit your NGDP targets simply by printing money, where's the incentive to fix the real economy.

At the government level any fixes can cause short term pain or disadvantage some particular group causing some political backlash. Why risk that when you know that even if you do nothing the NGDP target will be hit via the printing press?

At the individual level, opportunity is where the money is and the worse the performance of the real economy, the more money and opportunity is to be found near the output of the printing press, not in fixing the real economy.

Posted by: anon2 at February 25, 2014 7:10 PM

But since you can hit your NGDP targets simply by printing money, where's the incentive to fix the real economy.

The same place it is now? Why give congress an out of saying "NGDP is falling, that's why we can't fix anything." Democrats yell for more fiscal stimulus and Republicans yell for more tax cuts. Nothing happens.

Let the Fed stabilize NGDP and the current scapegoat is gone. We can then focus on fixing the real economy however is desired.

Posted by: anon at February 26, 2014 9:50 AM

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