Thursday, September 25, 2008

We're Nowhere Near A Bottom In Housing

From Reuters:

Prices of U.S. existing homes suffered a record drop in August and the rate of sales tumbled, offering little sign of improvement in the source of the financial crisis in the United States.

The pace of existing home sales decreased 2.2 percent to an annual pace of 4.91 million units while the median national home price declined a record 9.5 percent to $203,100, the National Association of Realtors said on Wednesday.

In what would normally be a potentially bright spot, the overstock of homes for sale shrank. However, the trade group said as many as 2 in 5 home sales were by borrowers who have seen their property lose value or are facing foreclosure.

"The NAR estimates that 35-to-40 percent of all sales are of distressed property, so underlying private activity is weaker than the headlines (imply) and there is little sign of imminent improvement," Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The inventory of existing homes for sale fell 7.0 percent to 4.26 million from the record-high overstock reported in July.

The existing home market is about four times the size of the new home sales market, making the existing home market more important.

Record price drops are a sign of weakness. They indicates sellers are desperate to move product (whatever that product is) and are willing to cave in price negotiations. Don't expect this process to end anytime soon -- especially as job losses intensify.

In addition, a larger percentage of the inventory is "distressed". This indicates the problems in the housing sector are intensifying. Again -- not good.

That problem is increasing in the new homes market:

The annual sales pace was down 11.5 percent from July to 460,000 homes and was sharply off the 510,000 pace expected by economists. The August decline was the biggest since November 2007.

The median sales price of $221,900 was off 5.5 percent from July, the lowest since $211,600 in September 2004.

The August sales pace was the weakest since 401,000 in January 1991.

See the above comments on the existing home market, as they apply to the new home market as well (with the exception of the distressed situation).

At the beginning of this year I wrote a piece that I hoped at the end of 2008 we would at least know when we would have some