Existing home sales drop 27% in July

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.