I don’t make a lot of changes to my 401(k) account. Heck, I barely touch the thing. That&rsquo...
Behind the bad news in housing sales is there even worse news?
09/24/2009 11:04 pm EST
The numbers, mind you, were bad enough. Existing home sales fell 2.7% in August. The drop comes after four consecutive months of increasing sales. And after a jump in sales of 7.2% in July economists had expected August numbers to continue the upward trend.
So why the drop?
I’d call one explanation “So, what did you expect?” Unemployment is still marching toward 10%. Consumers are paying down debt to repair their personal balance sheets. Mortgage money looks cheap until you notice that at 5% and change, you’re paying five percentage points above the 0% cost of short-term money. Historically that’s a big and expensive spread.
So any housing recovery is going to have set backs and the trend, even if it is indeed upward, won’t be smooth.
It’s the other potential explanation that worries me. In this theory the drop in existing home sales has come because buyers know that the market is way more congested with houses for sale than it looks. A lot of potential sellers have pulled homes from the market until things get better. Banks are sitting on a big backlog of houses should be in foreclosure but that they’ve foreclosing on because they don’t want to put the defaults on their balance sheet or in the market. In this explanation buyers have pulled back because they know that prices are about to take another leg downward and they’re waiting for bigger bargains.
I tend to believe there’s something too explanation #2. If you look at the decline in the number of existing homes on the market, it’s pretty clear that buyers have pulled houses off the market. And if you look at bank financial reports in the last quarter, there is a foreclosure gap. Given the state of the economy and the bad news we’re getting from the credit card market on rising default rates, banks should have foreclosed on more houses than they have.
If I’m right and it is explanation #2, then we’re looking a tough quarter or two ahead not just for housing stocks and the housing market but for the financial sector too.
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