Home prices still not low enough to trigger real demand; more weakness ahead

Monday, August 25, 2008, 12:25 PM

U.S. Existing Home Sales Rose 3.1 Percent in July (Aug. 25 - Bloomberg)

Sales of previously owned homes in the U.S. rose in
July from a 10-year low, while the gain wasn't enough to reduce the
supply of properties on the market.

Resales rose 3.1 percent,
more than forecast, to an annual rate of 5 million from 4.85 million in
June, the National Association of Realtors said today in Washington.
The median price dropped 7.1 percent from July 2007, and the number of
homes for sale jumped to a record.

The increase in sales
wasn't enough to keep up with the surge in properties coming into the
market as foreclosures mount. There were a record 4.67 million unsold
houses and condos on the market in July, representing 11.2 month's
supply at the current sales pace, matching the highest ever.

Even at this late
stage, we still get these same tired articles, where the NAR churns out
some statistics showing improving sales and the media tirelessly
trumpets the results.

As always, the fact is left out that bank repossessions and foreclosure auctions count in these results.

Knowing if sales are “up” or “down” is meaningless, without knowing what the driver of activity really is.

Note to journalists:
This is a really easy concept, and all you need to do is break out the
foreclosure/repo activity from the sales numbers for us to be able to
tell where we are. For the sake of accuracy and fair representation,
please start performing this very simple step.

Of course, if you can
read between the lines, the actual situation is discernable. Dropping
prices are consistent with foreclosure auctions, and mounting inventory
is consistent with weak buying activity.

All in all, I’d call
this a very weak report, and my title would have been:  “Home prices
still not low enough to trigger real demand; more weakness ahead.”

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