Monday, January 25, 2010

Homes Sales Plunge In December 2009

Homes Sales Plunge In December 2009

According to this MSNBC article, Home sales tumble as first-time buyers back off - December's drop is largest in more than 40 years, sales of existing (previously occupied) homes declined by almost 17% in December 2009, which is the largest such drop in over 40 years. 2009 overall saw home sales increase for the first time in 4 years (about 5% over 2008 home sales figures), but this came at a cost - home prices declined by over 12% in 2009, the worst such decline since the Great Depression.  Apparently, the December 2009 sales figures are 21% higher than the sales volume bottom of December 2008, but 25% lower than the December 2005 peak.  The article goes on to state that the housing market could worsen this spring when the the Federal Reserve ends its mortgage securities purchasing program, which has been artificially keeping interest rates low.  In addition to that the home buyer tax credit expires this spring (4/30/2010 to be exact).  According to the National Association of REALTORS (NAR), first-time buyers accounted for about 50% of all home sales in November 2009, but only 43% in December 2009.  Given this information, I think the ending of the home buyer tax credit this spring is a legitimate housing market concern.  The article states "December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the National Association of Realtors said Monday.  Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters."  I guess the proper technical term for this would be "oops".  In addition to the end of the mortgage securities purchasing program and the home buyer tax credit the problems of ever increasing foreclosures and 10%+ unemployment practically guarantee that housing prices will decrease in 2010.

Below are a few other highlights from the article:
  • Anna Piretti, senior economist at BNP Paribas, said "The numbers clearly indicate that the rebound in housing demand observed so far has been largely supported by government programs."  I agree, but I predicted this months ago - see my blog post Our Phony Real Estate Market.
  • Paul Dales, U.S. economist with Capital Economics, said "The report places a large question mark over whether the recovery can be sustained when the extended tax credit expires."  To me there is no "question mark" - there will not be a housing recovery any time soon.
  • Lawrence Yun, chief economist of NAR, "cautioned that the (housing) recovery will depend on whether the economy starts adding jobs in the second half of the year."  Really!?  While I have always known that jobs spur housing, this is the first time I have heard Yun say this.  See my blog post Real Estate Fiction where I quote Yun as saying "With home sales heading up and inventories shrinking, prices are stabilizing. These are the key conditions needed for housing to lead the economy into growth mode. Once that happens, jobs will follow."  This does not match Yun's latest statement that the housing market depends on jobs.  Which one is it Lawrence?
  • "The inventory of unsold homes on the market fell about 7 percent to 3.3 million. That's a 7.2 month supply at the current sales pace, close to a healthy level of about six months."  While this sounds reasonably positive it does not factor in all the "shadow inventory" that is lurking in the near future.  See my blog post Experts: More Rough Times Ahead for U.S. Economy to get a better idea of what I mean.
My conclusion remains the same: housing prices will continue to decline due to poor market conditions and lots of distress sales (short sales and foreclosures). Real estate and housing are simply showing the symptoms of the real problem: debt (more specifically - too much debt).

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