Market Scoffs at Pitiful Home Sales

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Call me crazy, but I thought a near 10 percent monthly drop in existing home salesmight affect the markets today. If not the sales, then maybe the 5.2 percent annual price drop, or the rise in inventories to an 8.6 month supply. Nope. Apparently that's not bad news to financials today.

Even the Realtors couldn't sugar-coat this one, with chief economist Lawrence Yun calling it a "setback" in the monthly press conference and later telling me, "The traditional buyers who are looking for a new home, whether because of changes in family circumstances, job relocation, they are not making that move. And the tightness of the credit can still be attributed to that."

Credit is tight, but no tighter than it has been for a few years now. Yes, FHA loans (loans geared to lower income borrowers and insured by the Federal Housing Administration which requires a small down payment) are more expensive, but the low end of the market, where we might find more FHA borrowers, is actually improving, while the middle of the market is stuck. In addition, the percentage of all-cash buyers rose to an all-time high of 33 percent.

Even if the market is bored of hearing about how badly existing homes are selling, they should have taken a bit of a pause regarding the public home builders. Yun pointed out that with existing home prices now at a 9-year low, comparable newly constructed homes are selling at 45 percent higher prices than existing homes. The new construction price premium historically is 15 percent.

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"We continue to expect further [price] declines in the coming months, and think the lower existing home prices will pressure homebuilders to cut prices in order to compete, unless they are content with low volumes through the spring," notes Dan Oppenheim over at Credit Suisse.

Builders noted higher sales expectations this month, but I have to agree that they won't get those sales unless they drop prices significantly. Housing bulls have been pointing to an improving jobs picture, but so far while that may be contributing to increased sales in other areas of the economy, it is missing housing.

"The bottom line is extremely simple to interpret. The housing market is still very depressed and a major drag on the economy, especially household net worth. The recovery has been extremely fragile since it has not been assisted by a housing volume component," writes Patrick Newport at IHS Global Insight.

If you take into account the fact that there are just over 2 million properties in foreclosure pre-sale inventory, according to Lender Processing Services, and 4.65 million loans 30 days+ past due, and foreclosure paperwork issues are delaying these properties coming to market, then you have to expect more price pain ahead. If folks don't think that's going to affect the greater economy in some way, they might want to think again.

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