We said on Monday to expect more bad news from the US housing market, but we didn’t know it would get so bad so quickly.
Following Tuesday’s awful existing home sales numbers, the Census Bureau announced on Wednesday that new homes had sold at an annual rate of 276,000 in July, including seasonal adjustment. That’s a 12% decline from June, and a 32% drop from July 2009.
It’s also a record low for a single month, as you can see in the instant chart from Calculated Risk:
This will come as no surprise to David Rosenberg, who included the following with his morning breakfast note (emphasis ours):
The U.S. housing sector is clearly double-dipping — that dive to 3.83 million units in July undercut the “depression” low of January 2009 by 15%! The lesson for the government is that their ‘tax goodies’ do nothing more than distort the market rather than actually help out. Oh yes, we should add this too; the “bulls” were all over the fact that home prices in yesterday’s existing sales report did not decline and that should be construed as a sign that real estate valuation has bottomed out. Not so fast. The fact that existing homeowners were stubborn and refused to discount was one of the reasons why sales slid a record amount in July, but reality will eventually set in that to move the near-record inventory, it will be the asking price that inevitably approaches the bid, not the other way around.
Similarly on the topic of price movements, Calculated Risk adds that it’s useful to look at another statistic: months-of-supply, which roughly indicates how long it takes to sell the existing stock of homes on the market.
Months-of-supply increased from 8 in June to 9.1 in July, and is rising after having previously declined from its record high of 12.4 in January 2009. CR comments:
Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.
This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don’t expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.
Maybe this will puncture some of those housing delusions we documented earlier. But just in case, we’ll re-post this chart one last time:
Related links:
New Home Sales decline to Record Low in July – Calculated Risk
Risk off, tin hat on – FT Alphaville
Housing delusions – FT Alphaville