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Wednesday, October 24, 2007 2:48 PM

Housing - The Worst Is Yet To Come

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The housing industry plunged deeper into recession as existing home sales plunge 8 percent.

The U.S. housing industry plunged deeper into recession last month as the August credit-market collapse made it harder for buyers to obtain loans.

Sales of previously owned homes fell 8 percent in September to an annual rate of 5.04 million, the fewest since records began in 1999, the National Association of Realtors said in Washington. The decline was almost twice as steep as economists forecast, while the median price dropped the most in almost a year.

"The worst isn't behind us, the worst is here right now," said Jonathan Basile, an economist at Credit Suisse Group in New York.

The inventory of single-family homes represented a 10.2 months' supply, the most since February 1988.

Pending sales plunged 6.5 percent in August to the lowest level on record following an 11 percent plunge in July. The measure tracks contract signings, while the figures on sales of existing homes are based on closings, which usually occur a month or two later.

The real-estate agents' group this month reduced its sales forecast for the 10th time this year.

D.R. Horton Inc., the second-largest U.S. homebuilder, said Oct. 16 that orders in the fiscal fourth quarter plunged to the lowest in almost six years as customers backed out of purchases and banks restricted lending.
There is no rational basis for anyone to suggest the worst is right here right now. But that does not stop anyone from trying (and they have been trying for months on end).

Once again the NAR is putting lipstick on a pig with their report Mortgage Availability Improving But Hampered September Existing-Home Sales.
Temporary problems in the mortgage market are easing and are expected to free some pent-up demand, but disrupted existing-home sales and distorted prices on sales closed in September, according to the National Association of Realtors®. Even so, prices rose in the Northeast and Midwest.
My Comment: Pent up demand? The only thing there is pent up demand for is selling. People are so far under water they are praying to sell at a higher price to avoid foreclosure.
The third quarter finished better than expected, with a 5.42 million annual rate of existing-home sales versus the 5.38 million forecast by NAR.
My comment: If you set the bar low enough, eventually you can stumble over it.
Lawrence Yun, NAR senior economist, said the decline is understandable. “Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,” he said.“
My comment: Once again there is no rational measure or reason for suggesting that mortgage problems peaked in August.
"It appears raw inventories are stabilizing, but the housing supply is a bit inflated now because the sales pace does not reflect underlying market conditions – sales were dampened by the mortgage cancellations," Yun explained.
My comment: The inventory of supply of is now 10.5 months up from 9.6 months is August. Is this stabilization? One of the reasons raw numbers appear to be holding is people are pulling listings off the market praying for better prices. Many people who want to sell cannot sell because they are too far under water. These people represent pent up selling demand not pent up buying demand.
“Once the pent-up demand begins to move, we’ll see housing supplies begin to ease and then prices will edge up.”
My comment: What year is that? We have upcoming issues with mortgage resets as the following chart shows.

Subprime resets peak this year but Alt-A problems which are just as big do not peak until 2011. In addition the overall economy is slowing dramatically. There is going to be consumer led recession to deal with. Unemployment has bottomed this cycle and is bound to rise dramatically. That will further pressure housing prices in a very significant way. The worst (by a long shot) is yet to come. Remind me to start looking for a true bottom in 2011-2012. Perhaps we get a bounce somewhere along the way.

Mike Shedlock / Mish

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