Home Sales STILL Stink

There's no way to make this sound better: July existing home sales STILL stink.

A week ago, I said that housing stinks and today's report from the National Association of Realtors underscores that declaration. Existing home sales collapsed 27.2 percent to 3.83 million from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009. It was the worst month-to-month loss on record and the lowest reading since 1996. As it turns out, the consensus estimate of 4.65 million homes was too high.


The results point to a 12.5 month supply of houses, greater than the previous months-of-supply high for the Great Recession, which was 11.2 months in 2008. I think 12.5 might qualify as a "glut". As a reminder, a normal housing market usually has under 6 months of supply; below 6 months of supply indicates that house prices will likely rise; and above 6-7 months of supply, house prices usually fall. At these levels of supply, it looks like prices are likely to fall further.

My friend Bill asked, "So what? I mean if those of us with houses aren't moving it can't have that big an effect on the economy, can it?"

It's true that the net economic impact of the new homes market is larger than that of the existing market, but every time a used house trades hands, there's a bunch of money spent on moving, decorating and let's not forget those countless trips to Home Depot or Lowe's.

But the real reason the housing numbers are spooking investors is that they tell us a deeper story.

It's clear that a large swath of the country is still suffering from the bursting of the housing and credit markets and isn't in the financial position buy a house -- period, full stop, the end. Those who perhaps could swing a potential real estate purchase are simply fearful of what the future might bring. "Will my job be secure? What if my income drops?" are lingering questions in the back of every American worker's mind.

So in essence, there's simply not enough confidence in the jobs market or the economic recovery for most folks to justify a purchase a home, regardless of how low mortgage rates drop.

So with a shaky housing market that is likely to appreciate only with the rate of inflation and small investors fleeing the stock market, how will Americans reach their long term financial goals? Perhaps in the most old-fashioned of ways: by reducing debt, living within their means and saving a portion of their incomes. And that just may be the silver lining of the entire crisis.

Image by Flickr User dsprankle, CC 2.0