The 'Helicopter
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
 | |  | |  | |  |
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Existing Home
July--Daryl
Montgomery
08/24/10
July--Daryl
Montgomery
08/24/10
Existing home sales plunged a record 27% in July, falling to the lowest level in 15 years.
"pause".
Once again analysts missed the number by a mile, being far too optimistic. Predictions
were for a drop of 14%, a pretty bad figure in and of itself, but little more than half the
actual result. The severe drop was also well telegraphed by a 30% decrease in
pending home sales in May. Pending home sales tend to turn into existing home sales
around two months later. May pending home sales dropped because of the
expiration of the federal government's home buying tax credit on April 30th. It is now
quite obvious that all this credit accomplished was to motivate people who were
already going to buy a new home to do so sooner rather than later and it didn't
create any additional sales. Just another example of how the federal government is
wasting tax payer money on ineffective stimulus programs.
The most amazing thing about July's existing home sales is that they were worse than
anything that took place during the bottom of the Great Recession when the U.S.
economy was shrinking at more than a 6% annual rate. Even at the bleakest point,
existing home sales were around the 4.5 million level. This July they fall to a 3.8 million
annualized rate. Moreover the drop from June was severe in every region of the United
States - down 23% in the South, down 25% in the West, down 30% in the Northeast and
down 35% in the Midwest. At the same time, inventories of unsold homes rose from 8.9
months supply in June to 12.5 months in July. Year over year, July 2010 home sales
were down 26% from July 2009. Despite the across the board collapse in demand,
median home prices somehow defied the fundamental laws of economics and rose
0.7% to $182,600.
There are three important messages from the July existing home sales numbers. First, the
housing market has not yet hit bottom and it could be a long time before this takes
place. Secondly, the numerous government programs to stimulate the housing market-
and this includes driving mortgage rates to record lows - have failed to make things
better. Third, if the housing market is in worse shape than at the bottom of the Great
Recession, then we are either already in another recession or about to enter one.
Daryl Montgomery
"pause".
Once again analysts missed the number by a mile, being far too optimistic. Predictions
were for a drop of 14%, a pretty bad figure in and of itself, but little more than half the
actual result. The severe drop was also well telegraphed by a 30% decrease in
pending home sales in May. Pending home sales tend to turn into existing home sales
around two months later. May pending home sales dropped because of the
expiration of the federal government's home buying tax credit on April 30th. It is now
quite obvious that all this credit accomplished was to motivate people who were
already going to buy a new home to do so sooner rather than later and it didn't
create any additional sales. Just another example of how the federal government is
wasting tax payer money on ineffective stimulus programs.
The most amazing thing about July's existing home sales is that they were worse than
anything that took place during the bottom of the Great Recession when the U.S.
economy was shrinking at more than a 6% annual rate. Even at the bleakest point,
existing home sales were around the 4.5 million level. This July they fall to a 3.8 million
annualized rate. Moreover the drop from June was severe in every region of the United
States - down 23% in the South, down 25% in the West, down 30% in the Northeast and
down 35% in the Midwest. At the same time, inventories of unsold homes rose from 8.9
months supply in June to 12.5 months in July. Year over year, July 2010 home sales
were down 26% from July 2009. Despite the across the board collapse in demand,
median home prices somehow defied the fundamental laws of economics and rose
0.7% to $182,600.
There are three important messages from the July existing home sales numbers. First, the
housing market has not yet hit bottom and it could be a long time before this takes
place. Secondly, the numerous government programs to stimulate the housing market-
and this includes driving mortgage rates to record lows - have failed to make things
better. Third, if the housing market is in worse shape than at the bottom of the Great
Recession, then we are either already in another recession or about to enter one.
Daryl Montgomery
