27
May 2011

More Bad Data: A Big Drop In Home Sales

By mshaw839

And the news is bleak once again.  Home re-sales dropped a record 27.2% to an annual rate of 3.83 million in July, the National Association of Realtors said Tuesday.  Making things worse, inventories rose to 12.5 months from 8.9 months in June, pressuring already depressed home prices. Supply is now at its highest level in more than a decade.

With rates still historically low, potential buyers are obviously staying on the side lines for other reasons.  Is it just a coincidence that mortgage applications and pending sales both plunged after the government eliminated the tax credit?  It’s hard to believe that the absence of the short term tax credit can have such a high impact on housing.

Realtors push blame on the banks due to slow underwriting but contracts are contracts and these current numbers mean 1 thing, people aren’t buying homes.

It is always noted that without a healthy housing market, there cannot be a healthy economic recovery.  For most Americans’ the biggest asset they own is their residence, so shrinking values destroy wealth and decrease spending. Such declines create domino effects that are felt across the economy such as small businesses having less collateral to borrower against and property tax revenues going down for municipalities.

The most recent housing numbers demonstrate a steep decline not the usual few points.  Such news hurts everyone.  Will the federal government intervene again?  With all of the talk about our nations spending and the current deficit such federal involvement needs to be limited.  And in reality what can the administration really do to fix the problem.

I think it’s time to let the markets deal with the issue at hand and let the corrections continue.  If it means another 5-10% then let it be.  Band-Aid’s will only mask the underlying issues like they have been all along.