Interest Rate Roundup

Monday, December 31, 2007

November existing home sales flatline

New home sales stunk up the joint in November. So how did the existing home side of the market do? Let's get to the latest stats from the National Association of Realtors:

* Sales edged up by 0.4% to a seasonally adjusted annual rate of 5 million from 4.98 million in October (previously reported as 4.97 million). That was roughly in line with economists' forecasts for no change. Regionally, sales were off 3.3% in the Northeast and 2% in the South. They were unchanged in the Midwest, but up 10.3% in the West. The November sales rate was down 20% from 6.25 million in November 2006.

* For sale inventory came in at 4.273 million single-family homes, condos, and co-ops. That was down 3.6% from 4.433 million in October (previously reported as 4.453 million units), and up 12.2% from 3.81 million in November 2006. On a months supply at current sales pace basis, inventory was 10.3 months, down from 10.7 months in October (previously reported as 10.8) and up from 7.3 months in November 2006.

* Median prices rose 1.6% to $210,200 in November from $206,900 in October (previously reported as $207,800). On a year-over-year basis, prices were down 3.3% from $217,300 in November 2006.

The November new home sales figures provided some fireworks. Not so the existing home data. The numbers were roughly in line with expectations, with a slight monthly increase in sales, a slight monthly decline in inventory, and another yearly decline in median prices.

Still, there's little reason to pop open any champagne corks. November's sales rate was the second-lowest on record behind October's. Supply remains elevated. And home prices have now fallen from year-ago levels in 15 of the past 16 months.

So what about the big picture? Well, we have a bit of a battle royale going on. On the one hand, the Federal Reserve is cutting interest rates and pumping liquidity into the banking system to encourage lenders to make more loans. You also have policymakers getting serious about updating the FHA mortgage program to make it a viable alternative to subprime and Alt-A loans. On the other hand, you have foreclosure activity surging, consumer confidence waning, home prices trending lower, and tighter lending standards in the private mortgage market.

The net effect is that home sales will likely chop around in the shorter term. Meanwhile, prices should generally trend lower -- on the order of the mid-single digits in 2008.

One last wildcard to consider: The performance of the broader economy. So far, housing has been in its own private recession, but the rest of the economy has been chugging along. That may be starting to change now. Jobless claims are trending higher, retail sales are lackluster, and manufacturing activity appears to be cooling. If the job market weakens notably in early 2008, it could knock another leg out from under the housing market stool.


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