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Posts Tagged ‘Existing Home Sales in U.S. Jump to Two Year High’

Let’s Look at Housing

Posted by Larry Doyle on August 21st, 2009 12:16 PM |

The National Association of Realtors just announced that existing home sales rose to the highest level in the last two years. This is obviously a good sign. What drove the increase and what is going on within the housing market broadly speaking? Can we assign a clean bill of health to the entire housing market based upon this report? Let’s dig deeper.

Bloomberg looks into this morning’s report and highlights the following in writing Existing Home Sales in U.S. Jump to Two Year High:

> Foreclosure-driven declines in prices, government credits for first-time buyers and near-record-low borrowing costs may keep stoking demand, helping the economy recover from the worst recession since the 1930s. Ongoing job losses are a reminder that more Americans will probably lose their homes, indicating a rebound will be slow to take hold.

Sense on Cents commentary: as I attested on August 11th in writing the “U.S. Mortgage/Housing Market has a Split Personality,” the economy has a decidedly different dynamic at work between lower priced homes which can be financed with conforming mortgages (ultimately purchased by Freddie Mac and Fannie Mae) and higher priced homes needing to be financed with Jumbo mortgages (not readily available by our friendly banks!!).

>Purchases of existing homes increased 5 percent compared with a year earlier. The median price dropped to $178,400 from the $210,100 in July 2008.

Sense on Cents commentary: do not look for price appreciation anytime soon. In fact, while home prices on the lower end may begin to stabilize on a relative basis, higher priced homes (those needing Jumbo financing) will remain under pressure.

> The number of previously-owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a “notable” increase, according to Lawrence Yun, the Realtors’ chief economist. At the current sales pace, it would take 9.4 months to sell those houses, the same as in June.

>About $3.4 trillion worth of houses are at risk of default because the owners owe more than the property is worth, Santa Ana, California-based First American CoreLogic said last week. By putting more homes on the market, foreclosures are keeping inventory higher than levels consistent with stable prices.

Sense on Cents commentary: the increase in unsold homes will keep prices under pressure which will help promote sales activity but will also serve to keep pressure on retail sales as consumers feel a negative wealth effect. Additionally, the supply of homes does not fully address the shadow inventory of homes held by banks but not yet put on the market. This shadow supply will likely increase given what is in the delinquency and foreclosure pipeline. (more…)

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