July Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: July Existing Home Sales
KEY DATA: Sales: -3.5%; July ’10-July ’11: +21%

IN A NUTSHELL: “”Housing continues to wander aimlessly along despite historically low mortgage rates.”

WHAT IT MEANS: The housing market is still not showing any signs that it is gaining traction. The National Association of Realtors reported that existing home sales fell in July as a large decline in the West offset modest increases in demand in the Northeast and Midwest. There was a small drop in the South. Condo sales are holding up but the stressed out, foreclosure dominated single-family segment continues to drop. Prices are easing as well but some of that may be the continued impact of distressed homes rather than the give and take of buyers and sellers for non-distressed homes. Sellers are recognizing the problems in moving homes by holding houses off the market and the inventory is falling.

MARKETS AND FED POLICY IMPLICATIONS: The Realtors commented, as have most observers of the market, that the appraisal process is causing negotiated deals to fail. If the contract price is not supported by appraisals, which may be affected by distressed homes and limited realistic comparisons, the mortgage will not be written. Only the best borrowers are getting mortgages and that is not enough to drive the market forward. Anyone who has tried to refinance lately, and I am one of those people, know how ridiculous the appraisal process can be. During the bubble, every home seemed to meet the appraisal standard and that ebullience help inflate the bubble. Now we have the opposite where it is frequently impossible for sellers to get a reasonable price even when buyers are willing to pay that price. And with banks so worried about loans failing, the conservative nature of the lending process is and will continue to limit the ability of the housing market to recover. This report, coupled with a rise in inflation, a jump in unemployment claims and a sharp drop in the Philadelphia Fed’s regional survey is only adding to the worries about Europe. European growth is faltering as the cure for their debt and deficits issues is killing growth. But that is no surprise. In the short term, budget cuts reduce economic growth and that is happening with a vengeance in a number of European nations. So why are so many people surprised when European growth numbers are weak? Got me. But that slowdown has implications for the rest of the world, especially if some European banks run into trouble. U.S. banks are linked to European banks and that creates worries that the financial sector will be hit again. That hurts confidence about future U.S. growth. Still, a double-dip recession is hardly baked in the cake and I will remind people that Wall Street and Main Street are not one and the same anymore.
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