Just a quick post on another fairly weak housing report: the National Association of Realtors released their existing home sales report this morning. Existing home sales increased 7.6 percent from July to August, but are down 19 percent from the same time last year. This only serves to confirm that the housing market is still very weak.
Of the report, Lawrence Yun, the NAR’s chief economist said
“The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty.”
I generally agree with what Yun is saying here, with the exception of the part about “attractive affordability conditions”. The conditions are only really attractive in the context of housing prices during the bubble years. Compared to historical norms, housing prices still have a way to fall before they become truly affordable. I would also make the argument that if homes were truly affordable, sellers would have an easier time moving their homes and we would not have a massive supply of excess housing. Affordability really cannot be determined in a bubble, it is determined by the market. Only when home prices are more in line with demand will conditions be truly “attractive” and “affordable”.
Housing supply did decrease from 12.5 months of supply in July to 11.6 months of supply in August (which is still far more than the 6 months supply in a healthy market). Despite the month-over-month decline, inventory is still up 1.5 percent year-over-year (Calculated Risk has a great post and some nice graphs that demonstrate this here).
The dearth of mortgage purchase applications will ensure that home sales will increase significantly any time soon. Despite low mortgage rates, economic conditions simply are not favorable for household creation or any substantial increase in home sales. A glut of inventory (with more on the way in the form of shadow inventory) means that home prices will continue to decline over the coming months.
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