Existing Home Sales Plunge to Record Low

[MichaelC 160]

Lowest Level of Sales in 15 Years

 

U.S. Existing Home Sales Plunge by Record

By Courtney Schlisserman - Aug 24, 2010

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

 

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.

 

Stocks tumbled and Treasury securities rallied, sending yields on 10-year notes to the lowest in 17 months, on concern the industry at the heart of the financial crisis will lead the nation back into a recession. Recent reports on jobless claims and manufacturing point to a slowdown in growth that may prompt the Federal Reserve to consider additional moves to boost the economy.

 

“Today’s data do not bode well for home prices,” said Michelle Meyer, a senior economist at BofA Merrill Lynch Global Research in New York. “There is a decent chance we reach a new bottom for home prices. There’s going to be a prolonged, painful drop.”

 

The Standard & Poor’s 500 Index fell 1.5 percent to 1,051.87 at 4 p.m. in New York, the lowest close since July 6. The yield on the benchmark 10-year Treasury note dropped to 2.49 percent, while the two-year note yield touched a record-low 0.4542 percent.

 

Record Low

 

The pace of existing home sales is the slowest since comparable records began in 1999. The agents’ group revised the June sales figure down to 5.26 million from a previously reported 5.37 million.

 

Economists projected sales would fall 13 percent. Estimates in the Bloomberg survey of 74 economists ranged from 3.96 million to 5.3 million. Previously owned homes make up about 90 percent of the market.

 

Purchases of single-family homes also dropped 27 percent, the biggest one-month decrease in data going back to 1968. July’s 3.37 million annual rate was the lowest since May 1995.

 

Compared with a year earlier, existing home sales fell 26 percent before adjusting for seasonal patterns.

 

The median price increased 0.7 percent to $182,600 last month from July 2009.

 

Fed Bank of Chicago President Charles Evans today said that while the housing market and U.S. economy have shown signs of improvement, recovery isn’t yet assured.

 

Fed Action

 

“Although there are some signs of general economic recovery and some evidence of home-price stabilization, we are certainly not out of the woods,” Evans said in a speech in Indianapolis before the housing report. The recovery “seems to be extremely modest” and the central bank’s “accommodative policy is appropriate,” he said in reply to an audience question.

 

The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, the NAR said.

 

“The problem with housing is there’s actually a lot of shadow inventory,” said Constance Hunter, chief economist at Aladdin Capital Management LLP in Stamford, Connecticut. “The Fed must enact a second quantitative easing strategy,” Hunter said, referring to additional central bank purchases of assets like Treasury securities to pump up the money supply and ease credit.

 

Broad-based Drop

 

Sales last month fell in all four U.S. regions, today’s report showed. Foreclosures accounted for 22 percent of total purchases in July, while short sales, where banks agree to take less than the value of the mortgage, made up another 10 percent, the NAR said.

 

Purchases will be “soft for at least two more months as the housing market works through the effects of the end of the tax credit,” Lawrence Yun, the group’s chief economist, told reporters at a press conference.

 

A government incentive of up to $8,000 boosted sales earlier in the year, pulling forward demand. Housing’s inability to build on the temporary boost generated by government assistance is one reason the economy is having trouble strengthening.

 

‘Excellent Pricing’

 

“Demand is low across the country,” Richard Dugas, chief executive officer at Pulte Group Inc., said in an Aug. 20 interview with Bloomberg Television. “You have record-low interest rates and excellent pricing, but consumer confidence eased. We really need the economy to improve and job creation to take hold before people feel comfortable stepping into a home.”

 

Pulte is the largest U.S. homebuilder by revenue.

 

Robert Shiller, a professor at Yale University and chief economist at MacroMarkets LLC in Madison, New Jersey, said the July sales plunge was “anomalous” because it came one month after the original deadline for closings to take advantage of the government tax credit. The deadline for closings was later extended until the end of September.

 

“Let’s not overreact to these latest sales numbers,” Shiller, co-creator of the S&P/Case-Shiller index of property values, said in an interview with Matt Miller on Bloomberg Television’s “Street Smart. “You can’t compare this number to the other existing sales numbers.”

 

Administration’s Plans

 

To help prop up the market, the Obama administration will offer $1 billion in zero-interest loans to help homeowners who’ve lost income avoid foreclosure as part of $3 billion in additional aid targeting economically distressed areas.

 

The Department of Housing and Urban Development plans to make loans of as much as $50,000 for borrowers “in hard hit local areas” to make mortgage, tax and insurance payments for as long as two years, according to an Aug. 11 statement. The Treasury Department will also provide as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the statement.

[MichaelC 160]

The most disturbing part of that article is the mention that the Feds are going to offer yet another giveaway: $1B in zero interest loans to homeowners at risk of foreclosure. When do the bailouts and giveaways end?

I'm all for hope and change. I'm hoping there's a change in the White House.

[<Steve> 82]

You can't solve a debt problem with more debt!

[MichaelC 160]

You can't solve a debt problem with more debt!

The government seems to think otherwise.

[jdetrovato 0]

Really, a big part of the problem, if not the biggest part, is psychological in nature. If people went out and started spending again the economy would quickly recover.

[MichaelC 160]

Really, a big part of the problem, if not the biggest part, is psychological in nature. If people went out and started spending again the economy would quickly recover.

I have to disagree. Spending money you don't have is exactly what made the economy crash in the first place. And there isn't much cash flow these days. People are concerned about things that affect the direction of the country and the economy: high unemployment, unimaginable deficits on the local, state, and federal levels, mid term elections in November, etc. So holding on to one's cash reserves is a logical response to this mess we're in.

[<Steve> 82]

Right now people are slaves to their debt. The house of cards crashed. People are worried about the overpriced over leveraged house they bought and trying to keep up with those credit cards while driving around in a $30K + car they can't afford, spending more than they make via debt. It maxed out and now it's time to pay it back or lose it with a recession.

 

Mean while we have a government that continues to go deeper into debt and still doesn't get it. You have to stop or crash. Only when we get people in office to stop the madness, and get Uncle Sam under control and heading in the 'right' direction will you see confidence in business and people come back.

 

Government is not the economy, but Big government has an impact on it. The greatest economy, our economy, was not generated by government, quite the opposite. And we need to get back to that foundation.

 

If you want to take a break, check out Paul Ryan who explains it well with out all the political noise. Good videos, too (click past until you get to an interview video).

 

website: Paul Ryan

 

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