The collapse of the housing market is the main engine of the US economic downturn, so when housing begins to “bottom,” we should be see light at the end of the tunnel. Was there any sign of this “bottoming” process in yesterday’s existing home sales? Nope. Asha Bangalore at Northern Trust went through them with a fine-tooth comb and found nothing encouraging.
Sales of existing homes declined 2.6% to an annual rate of 4.86 million units in June. Purchases
of single family homes declined 3.2% to an annual rate of 4.27 million units, the lowest sales pace
since January 1998 (see chart 1). Sales of existing single-family homes are now down nearly
33% from their peak in September 2005.
On a year-to-year basis, sales of existing single-family homes fell 16.0% in June, a gradual
increase after a 14.4% drop in April and a 15.2% decline in May. In other words, the housing
market’s status is not improving…
Overall, the inventory of existing homes rose to an 11.1 month supply, up from a 10.8-month
supply in May. The median price of an existing single-family home ($213,800) in June fell 6.7%
from a year ago. Given the number of unsold homes in the market, home prices would have to
fall further to clear the inventory.
Asha did discover something interesting, which is that existing home sales fell far less in the West than in other regions of the country. She attributes this to the vast number of foreclosures in California, which have led to huge drops in price (at some level, thankfully, the market clears). She notes that this suggests that prices everywhere else have much further to fall.
Asha also helpfully provides a chart showing the peak-to-trough fall in existing home sales in previous downturns. With a 33% fall so far, we’re already in the “worse than usual” range. Although this would normally be cause for optimism–not much farther to go!–the magnitude of the recent boom suggests that this crash could end up being the worst of the lot.