It's back: "Pent-up demand"

The National Association of Realtors announced today that existing home sales jumped up in February to a seasonally adjusted annual rate of 5.03 million units.

But, the real news is the figure is 23.8% below February 2007's level, and the national median fell 8.2% to $195,900 - the steepest year-over-year drop on record.

While this mostly a national story, here is what the report said about the West region:

"Existing-home sales in the West slipped 1.1 percent to an annual rate of 920,000 in February, and are 29.2 percent below a year ago. The median price in the West was $290,400, down 13.4 percent from February 2007."

Those are some significant declines - 29% in sales volume, 13.4% drop in median. Notice that these numbers don't include new homes. You may have noticed that new home stats aren't any better.

There is also the standard quote from NAR chief economist Lawrence Yun. The bold is our emphasis:

“We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said. “Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”

Ah yes, the old "pent-up demand" card. This tactic is constantly being employed by the NAR and others to explain why home sales have touched record lows and median prices are falling at a national scale not seen since the Great Depression.

The theory of "pent-up demand" assumes there are scores of hungry, salivating buyers looking to jump headlong into the real estate market, but are constrained for some reason. In the early 90s, it was the Gulf War, as evidenced by this May 1991 article in the OC Register that was overly optimistic (and way, way too early) in calling a turnaround. Today, it's the availability of credit.

Remember, a bottom was not reached for another four years after this story was written. We've included our comments on key messages employed in this news story - they are in parentheses. Take note of the types of messages, and notice how they are still in play today:

Sales of OC homes up 17.6% in April - Housing market on the rebound
The Orange County Register - May 29, 1991

"Statistics finally are catching up with rumors of a rebounding housing market in Orange County.

"Sales of existing homes in April showed the first year-to-year increase of the housing recession, the California Association of Realtors reported Tuesday. Lower interest rates and lower home prices drove the surge. ... (Interest rates are low! Prices are low!)

"The sales numbers support the industry's contention that the resale housing market bottomed out in January. ... (We're the real estate experts and we called the bottom. Look - we're right!)

"Price increases generally follow sales increases, said John A. Tuccillo, chief economist for the National Association of Realtors. (Did you notice this exact same tidbit appeared at the end of the Yun quote? This is what happened on the way down - lower sales levels led to lower medians)

'Buyer's market conditions are not as prevalent as they were six months ago. Now, with more takers for the offers, prices have started heading up in nearly all ranges.' (Buy now or you risk mistiming the market)

"Leslie Appleton-Young, economist for the Realtors association, expects sales to fall back.

'April's sales activity was stronger than expected and was intensified by the temporary boost in pent-up housing demand created by the gulf war; however, given the uncertainty over the national economy, housing sales may level off to a more sustainable level in coming months,' she said. (There's that pent-up demand again! Though, this time, Appleton-Young was a bit conservative about forecasting the future) ...

"Just as Orange County outperformed much of the state in April, California did better than the rest of the West and the nation as a whole. " (It's different here)

"In the West, home resales in April were still 3.4 percent below a year earlier." (This was the last paragraph in the story)

Two other OC Register stories directly mentioned pent-up real estate demand in 1991 alone:

"'I think there's a lot of pent-up demand out there for houses,' (RE agent) See said.

"At least some of that pent-up demand was built up during November and the first two weeks of December. Though the county's million-dollar home sales were more geographically dispersed during that period, there were fewer homes sold for less money overall than throughout much of the year."
...

"There's a tremendous pent-up demand for affordable housing," (consultant) Johnson said.

Remember...the actual bottom was still another four years away, despite these experts making it sound like buyers were ready to come out of the woodwork long before then.

Our take is that pent-up demand isn't nearly as much a factor in swaying the market as many real estate professionals lead you to believe.