Existing home sales drop 27% in July

posted at 10:18 am on August 24, 2010 by Ed Morrissey

Reuters assures readers that the latest crash in the residential real-estate market is unexpected, but that’s a little tough to pull off.  Bloomberg had already warned this morning that the numbers would be very, very bad.  Even at that, they missed the mark by a wide mark:

Sales of previously owned U.S. homes dropped more steeply than expected in July to their lowest pace in 15 years, an industry group said on Tuesday, implying further loss of momentum in the economic recovery.

The National Association of Realtors said sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest level since May 1995. June’s sales pace was revised down to a 5.26 million-unit pace.

For the record, Bloomberg and Reuters both guessed about the same before the announcement:

Sales of U.S. previously owned homes probably plunged in July to the lowest level since March 2009, evidence the market is restrained by foreclosures and limited job growth, economists said before a report today.

Purchases dropped 13.4 percent from June to a 4.65 million annual rate, according to the median of 73 forecasts in a Bloomberg News survey. A decline would be the third in a row.

Reuters had guessed 12%.  The problem in the market comes from a glut of inventory as well as a lack of buyers.  Want to guess why demand is so low?

“There’s obviously a very severe payback going on,” from the expiration of the government tax credit, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Prices need to come down further to deal with the looming oversupply.” …

“Demand is low across the country,” Dugas said. “You have record-low interest rates and excellent pricing, but consumer confidence eased. We really need the economy to improve and job creation to take hold before people feel comfortable stepping into a home.”

This is just a hangover from the gimmicky stimulus policies put in place by Barack Obama.  The homebuyer tax credit got already-qualified buyers to make purchases they would have made in the near term anyway, and subsidized them unnecessarily with borrowed money that added to the deficit.

In order to stabilize the residential markets, jobs have to return and prices have to stabilize.  The Obama administration has gotten in the way of both processes.  Thanks to ill-advised taxpayer-subsidized interventions, prices have remained unrealistically high, and no one wants to buy until they pay the right amount for the value of their investment.  And until we quit penalizing capital and introducing massive ambiguities into regulatory regimes and expanding them, jobs won’t get created and new buyers won’t materialize anyway.

Update: The AP notes an ominous measure:

It would take 12.5 months to sell off the 4 million unsold homes on the market at the current sales pace.

That should be no higher than six months in a healthy economy.


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Bush was able to fund a war in 2 theaters, while giving us tax cuts–paradoxically, the Federal Government took in record revenues.

As any economist will tell you, it’s called subsidizing growth through deficit spending. On a short-term basis it produces growth (and high tax revenue) but ultimately fails to produce either and can end very badly.

Under Bush, we had record prosperity and productivity and a Dow that hit 14,000 while interest rates were low.

Have you noticed that “record prosperity” was in fact nothing more than a massive asset bubble? Did you notice that low interest rates were a very bad thing that fed and prolonged the bubble? I mean, neither of these points is even slightly controversial. I can’t figure out why in the world you’d make those observations.

I don’t mind spending on the military if someone decides it’s a good idea to fight wars on multiple fronts simultaneously, but taxes should have been raised, or other spending cut, in order to pay for it.

bayam on August 24, 2010 at 10:12 PM

trailboss on August 24, 2010 at 7:35 PM

No, Skippy. I’m 51. I lived it. Put down the kool aid and switch to Ray-Vans. Those rose-colored ones you’re wearing have really messed with your perception.

kingsjester on August 24, 2010 at 10:15 PM

Ray-Bans

kingsjester on August 24, 2010 at 10:31 PM

Wow there’s some seriously bad economics bein trolled around here tonight.
Cutting taxes always raises revenues by encouraging investment and business expansion.
Raising taxes always strangles growth and investment.

Interest rates have been artificially too low for years eliminating any incentive to save and every incentive to borrow beyond ones means, the fed has been awful for years now. under the guise of keeping inflation low. The feds been a disaster.

The Demrat policies are unpredictable except for the fact that they are anti-capitalist and looking to punish producers to pay their slacker constituents off.

Business will not spend as long as the far left controls the House, Senate and Presidency. Why take a risk when you know your profits are likely to be confiscated to pay off the slackers and lazy asses?

Geithner is a total screw up! He screwed up his last international job doing almost everything assbackwards and is doing the same here. For guys who are so found of raisin taxes why don’t they ever pay theirs. THIEVES, LIARS and THIEVES!

dhunter on August 24, 2010 at 10:40 PM

Cutting taxes always raises revenues by encouraging investment and business expansion.

Then taxes should be cut to near zero. Of course, Warren Buffet would tell you that all his corporate CEOs expand when consumer demand increases, not when tax cuts arise. But I wish you were right, and the world was that simple.

Interest rates have been artificially too low for years eliminating any incentive to save and every incentive to borrow beyond ones means, the fed has been awful for years now. under the guise of keeping inflation low

Very good point, low rates have been a big cause of our problems. (Although Greenspan stated that low interest rates would continue only while inflation remained low, but nonetheless, keeping them so low was clearly a huge mistake.)

Business will not spend as long as the far left controls the House, Senate and Presidency

Business won’t spend as long as there’s no consumer demand to spur expansion and cap investment. Given the state of our Great Recession, which in many ways looks like a depression, it won’t change under Obama or any other President. Simply blaming one party isn’t a solution- you’d better elect someone with the right economic policies and learn from past mistakes. The disaster caused by the economic crisis will continue until all the personal and business debt has been unwound (again, similar to our last depression).

bayam on August 24, 2010 at 10:55 PM

On a short-term basis it produces growth (and high tax revenue) but ultimately fails to produce either and can end very badly.

We had strong growth for at least 5 years and the IRS revenue take was a record in the country’s history.

Have you noticed that “record prosperity” was in fact nothing more than a massive asset bubble?

I don’t think so–I think it was real.

Did you notice that low interest rates were a very bad thing that fed and prolonged the bubble?

No, I don’t see that so-called “bubble” was prolonged.
What we had was a market halt on Sept. 15,2008 when someone took out $550 MILLION from the market in 2 hours.
TARP and everything else flowed from that.
A “bubble” was brought about when the derivatives market was shaken by the September mini-crash.
Then, emotion, as touted by Washington and mainly 0bama, screaming “crisis” did the rest.
What’s happening to the market now is a direct reaction of Business to Obamunism.
People, including small businesses and corporations, are hoarding their money and saving because they’re afraid of the costs and taxes that lay ahead.

I can’t figure out why in the world you’d make those observations.

I can’t figure out why you keep peddling your whiny accountant cr*p, either.
You sound like a DemocRat.

I don’t mind spending on the military if someone decides it’s a good idea to fight wars on multiple fronts simultaneously, but taxes should have been raised, or other spending cut, in order to pay for it.

bayam on August 24, 2010 at 10:12 PM

Taxes didn’t need to be raised.
If President Bush had thought it necessary to raise taxes to pay for the WOT, he would have done so.

BTW, you still haven’t justified Porkulus costing MORE than the entire Iraq war, if you feel so jolly about war and raising taxes…

This phenomenon of low housing sales isn’t tied into the sub-prime issue, but is a direct product of the down economy created by 0bamanomics.
People are losing their jobs, then they lose their homes.
The homes aren’t selling because everyone’s trying to move to either cheaper digs or another town where they think the job market is better.
The solution is to vote out the DemocRats in NOvember and to rein in 0bama’s spending.
If the Bush tax cuts are allowed to expire and real movement isn’t made to repeal 0bamaCare, the economy is really going to go South.

Jenfidel on August 24, 2010 at 11:17 PM

Artificially low interest rates.
Extremely high over-valuation.
Lax regulation of credit criteria.
Forced borrowing to promote social engineering.
Government (uh, that’s TAXPAYER) subsidized mortgages.
Government (US again) bailouts for banking and financial sectors.
Government (you know who again) bailouts AND subsidies for various business sectors (auto, insurance, etc.).
Government (who could it be this time?) subsidies for irresponsible speculative borrowers.

There seems to be a connection to all of these things.. hmm what could it be??

Oh, wait, I know now… The connection is that the only people paying the price for all of this ponzi scheme “governing” are US – THE TAXPAYERS!!
We are footing the bill for all of the borrowing to subsidize, bailout and and propup all of this speculative social engineering going on. We are the ones who are paying MUCH more property tax on our homes – over valued because they are being artificially propped up by…. you guessed it… OUR TAX MONEY!!!
We are the ones paying $50k for a new freaking pickup truck – because the car manufacturers have been kept in business and their financing propped up by…. OUR TAX MONEY!!
Everywhere you look, we are screwing ourselves, through borrowed money WE HAVE TO PAYBACK!!!

This is insanity!!!!!

KMC1 on August 24, 2010 at 11:26 PM

Business won’t spend as long as there’s no consumer demand to spur expansion and cap investment.

Consumers won’t spend until they have money, thus businesses will be waiting forever–so much for your “After you” theory.

Given the state of our Great Recession, which in many ways looks like a depression, it won’t change under Obama or any other President.

You think not?
Wanna bet?
The minute we get a Republican President in there who doesn’t wail on “Wall Street,” “Big Business” and Capitalism 24/7 like ZeroBama and who will start rolling back big Lib programs like 0bamaCare and 99-week unemployment bennies and cutting the federal budget, plus enacting across the board tax cuts, the economy will spring back to life.

Simply blaming one party isn’t a solution-

Why isn’t it, when they are the ones to blame and whose fault it is.

The disaster caused by the economic crisis will continue until all the personal and business debt has been unwound (again, similar to our last depression).

bayam on August 24, 2010 at 10:55 PM

What bullsh*t.
Debt is a valid tool of investment.
Are you a Communist?
“The disaster caused by the economic crisis” which 0bama created will by over when 0bama’s gone and not passing any more Big Ticket government programs and isn’t around yapping about people’s “greed” and how entrepreneurs have “made enough money.”

Jenfidel on August 24, 2010 at 11:30 PM

KMC1 on August 24, 2010 at 11:26 PM

Excellent rant!
My hat is off to you! :-D

Jenfidel on August 24, 2010 at 11:32 PM

Why isn’t it, when they are the ones to blame and whose fault it is.

Because the best they’ve been able to do is screw up things more slowly, that’s why.

Temporary debt is a valid tool of investment.

With that tiny correction you’re absolutely right.

But, as you would notice if you spent 5 minutes researching, we have been going into more consecutive debt level for decades. Both for consumers and the government. And guess what – the bubble’s finally popped on the former.

Dark-Star on August 24, 2010 at 11:43 PM

The simple fact is the entire cause of our troubles is the plan advanced by Dodd and Frank, beginning with CRA in the Clinton years and expanding later to force Fannie Mae and Freddie Mac to buy subprime mortgages, not requiring their disclosure as part of traditional mortgage securities (investors were never told these were no longer 100% standard mortgages in the fund, which were/are rock solid investments) which instantly drove the market value to zero when problems first arose, and enacting the insane “mark to market” rules which would have forced AIG and a cascading series of banks and insurance companies worldwide into receivership, killing the credit market for years to come had it not been for the first half of the TARP money, which provided liquidity and guaranteed the existing instruments would not be worth zero.

Adjoran on August 25, 2010 at 5:11 AM

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