US Housing Sales Decline In August

Housing continues to get worse (so much for the bottom that has been loudly proclaimed nearly every month since late spring/early summer):

From the FT:

New data on Wednesday showed that existing home sales dropped by 2.2 per cent in August, which was much worse than expected and highlighted the continuing downturn in the US housing market.

The median existing home price fell 9.5 per cent to $203,100, the sharpest drop on record.

Meanwhile, the inventories of previously owned homes for sale fell 7 per cent to a supply of 10.4 months – its lowest level since March. A significant further drop supply of existing and new homes on sale is viewed as necessary for the recovery of the housing market.

However, many of the sales at the moment are of properties that have been foreclosed on or being sold by homeowners whose properties have fallen below the value of their mortgages.

“There has been no meaningful change in the level of activity since late last fall,” said Ian Shepherdson of High Frequency Economics.“The NAR estimates that 35 per cent to 40 per cent of all sales are of distressed property, so underlying private activity is weaker than the headlines and there is little sign of imminent improvement.”

The other issue is that the inventory measured in this story is the inventory of homes that are “currently on sale”, it doesn’t measure homes that are unoccupied by the owners but have been pulled off the market, foreclosed homes that haven’t put up for sale yet, etc.

I.e. to say that thinks are weaker than the numbers indicate is an understatement to be sure.

In the end though the only numbers that truly matter are the inventory numbers, and to put them into the proper perspective take a look at the chart below:

Graphic courtesy of the WSJ

As you can see housing inventory remained fairly constant from ‘00 well into the housing boom and then suddenly spiked in ‘05, and even though inventories declined last month there needs to be a massive drop in unsold inventory for housing prices to stabilize. Furthermore the drop in inventories would have to include many of the homes that aren’t yet reflected in current inventory data.

Finally while the bailout plan will be marketed as a way to ease the pain from the housing crisis understand that you simply cannot legislate away the inventory problem, or the very necessary correction in housing prices without some sort of extreme action. I.e. the housing correction will continue to run its course unless the government starts handing out money for people to buy houses with and/or starts bulldozing unsold inventory.

You can read more from the FT here, and WSJ coverage on the impact of the bailout plan on the housing market here.

Sources:

The Financial Times: “US Home sales much worse than expected” — James Politi, September 24, 2008.

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