Interest Rate Roundup

Wednesday, November 28, 2007

October existing home sales -- Ugh.

We just got our latest look at conditions in the existing home market, courtesy of the National Association of Realtors:

* Sales fell 1.2% to a seasonally adjusted annual rate of 4.97 million from 5.03 million in September (previously reported as 5.04 million). That was slightly worse than economists' forecasts for a 0.8% decline to 5 million. The October sales rate was down 20.7% from 6.27 million in October 2006.

Combined sales are now running at the lowest level since the late 1990s, when the NAR began to report sales of single-family homes, condos, and co-ops all together. The "single-family home only" data goes back further. Sales there were 4.37 million, the same as September and the lowest since January 1998 (4.18 million).

* For sale inventory came in at 4.45 million single-family homes, condos, and co-ops. That was up 1.9% from 4.37 million in September (previously reported as 4.399 million units), and up 16.9% from 3.86 million in October 2006.

* On a months supply at current sales pace basis, inventory was 10.8 months, up from 10.4 months in September (previously reported as 10.5) and up from 7.4 months in October 2006. That's the highest reading on record for this indicator of the supply/demand imbalance. The single-family home only data goes back farther. There were 10.5 months of supply there, the worst going all the way back to July 1985 -- or more than 22 years ago (see above chart).

* Median prices dropped 1.2% to $207,800 in October from $210,400 in September (September's figure was previously reported as $211,700). On a year-over-year basis, prices were off 5.1% from $218,900 in October 2006, the biggest decline yet for this down cycle. In fact, home prices are now at their lowest level since March 2005.

My analysis: The march of dismal housing data continues. In October, overall home sales fell to the lowest level on record, single-family home sales fell to the lowest in almost 10 years, a key gauge of for-sale inventory hit the highest level in more than 22 years, and prices dropped by the most on record. Did I miss anything?

Seriously, though, this report provides even more clear evidence that the housing market is suffering. Tightening lending standards, reduced buyer confidence, and excess inventories are putting immense pressure on home builders and home sellers.

The Federal Reserve is trying to counter those pressures by cutting interest rates, and I suspect they'll do so again before the end of the year. But with the value of mortgage collateral declining and the overall economy weakening, it's going to be an uphill battle. I still am not looking for a lasting recovery until the back half of 2008 or sometime in 2009.


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