It's been a while since I've sensed quite this much doom among the folks obsessed with housing (one told me simply, "You're going to be very busy!"), but July existing home sales are unquestionably the product of a perfect storm:
- The home buyer tax credit expired April 30th, and originally you had to close by June 30th. Yes, that closing deadline was extended, but the bulk of tax credit-inspired sales likely closed by the end of June; hence, the July hangover.
- Renewed concerns about a double-dip recession and lackluster job growth have pushed confidence in the housing market lower.
- Rock-bottom mortgage interest rates have done nothing to boost mortgage purchase applications in the past few months.
- Foreclosures are taking a turn for the worse yet again.
I've said over and over that the anticipated drop of anywhere from 12 to 25 percent in July sales is not wholly a result of the end of the tax credit. But then I got to thinking about prices. Obviously a far slower sales pace pushes inventories, and specifically months supply of inventories, way up. Dan Oppenheim, over at Credit Suisse says, "We think months’ supply will jump sharply based on the lower sales pace, with total and single-family months' supply likely nearing or surpassing 11 months, which was the prior record level seen in summer ‘08. This will create further near-term pricing pressure."
But what about the fact that the first time buyers are out (mostly) of July's numbers? "Their share is likely to drop into the mid or low 30's in July, dragging existing home sales down to their lowest level since the present data series begins in 1999," say the folks over at IHS Global Insight.