Existing Home Sales—Don't Trust The 'Bounce'

Gordon Banks

I won’t deny today’s existing home sales numbers from the National Association of Realtors were a bright spot in an otherwise, dare I say, ridiculous economy, but I also won’t deny the fact that these numbers are likely unsustainable.

Existing home sales rose 5.5 percent in September from August and are up 1.4 percent from September of 2007 (the first year over year increase in three years, mind you). But the numbers are driven by marked drops in home prices (9 percent overall) in all regions of the nation. Yes, the price drops are most steep in the West (18.5 percent), where sales rebounded the most.

In addition, the Realtors admit that 35 to 40 percent of all existing home sales are distressed properties, that is, either bank owned foreclosures or short sales, where the bank agrees to let the borrower sell the home for less than the value of the loan.

In addition, timing is the key. The Realtors measure existing home sales by closings, not contracts signed, as the Commerce Dept. does for sales of new construction. So the existing home sales in September are based on contracts signed in June, July and August, before the real crash in the stock market and the freeze up in credit.

Now you could argue that the takeover of Fannie and Freddie at the beginning of September and the ensuing TARP will bode well for the future, but then you’re not taking into account the R word. Recession. Recession causes folks with good credit and good jobs to factor fear into the equation, and that will take its toll on sales. And then there are all the folks who will lose their jobs in the coming months and either have to downsize or sell their homes into an already distressed market.

Jobs, tight credit, and fear of the economic known will undoubtedly put pressure on home sales in the coming months and leave today's bounce as just that, a momentary bounce.

  • Home Prices Fall Further
  • Foreclosures Up 21%
  • Home Buyers Trickle Back
  • Housing Bailout Stalled
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