Housing Takes It On The Chin - Again

Existing home sales in September dropped to the lowest level since the NAR started keeping records in 1999. Not exactly a surprise.. But that number does not tell the whole story. What matters most to the economy is not so much the number of homes sold, but their dollar value. So I produced a couple of charts for existing and new home sales tracking gross dollars instead of units.

First, the new home data (click on the chart below to enlarge).

Building new homes has gone from being a $400 billion/year business, to one doing around $225 billion/yr and dropping fast (red line). More worrying still is that builders can't get rid of inventory yet, which is stuck at around $150 billion (at average prices). The result is that the Inventory-to-Sales ratio (blue line) has rocketed from 0.35 to 0.65. I don't know of many, if any, businesses that can long withstand a doubling in their inventory/sales ratio. There is more trouble ahead for the home-builder sector.

Next, the data on existing home sales.

The NAR provides free data that go back 12 months - historic data are "available for purchase" (mind, I'm not complaining; everyone's entitled to a living - including brokers). But even so, they tell the story.

Here, we are dealing in the $$ trillions. In just 12 months existing home transactions have shed $400 billion in annual turnover (red line); that has to hurt mightily everyone involved. This translates to lower commissions, closing costs, loan points, purchases of new appliances and furniture, moving fees, etc. Data: NAR

The inventory of existing homes for sale is currently valued at $1.1 trillion (average prices, green line) and the Inventory-to-Sales ratio has jumped from 0.55 to 0.88 in just 9 months (blue line). While the higher inventory is not exerting the same kind of pressure as unsold new homes put to builders, it is still a significant drag on economic activity. People who can't sell their homes as fast and/or for as much as they originally calculated, are not likely to go out spending freely - the "wealth effect" turns around 180 degrees, particularly if their homes were used as HELOC piggy banks.

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"New Home Sales Unexpectedly Rise" (!!!!!)

This is one of the most shamefully spun headlines I have ever seen in financial reporting. They must think we are beyond stupid and well into moron territory.

The facts: Sales for September came in at 770.000 units, exactly as expected. August was originally reported at 795.000, but with today's report they were revised down significantly to 765.000. So this loss of 30.000 units was reported as a... rise!

Tell you what: let's permanently cut the reporter's salary by $35.000 in October, but then give him a $5.000 "raise" in November. How happy is he going to be about this "unexpected rise"?

This is getting Orwellian.