US existing home sales falls despite tax credit
Existing house sales in the US fell 2.2% month over month in May to an annualized 5.66 million rate from the upwardly-revised 5.79 million rate in April. Note that analysts polled by Reuters expected sales to rise to a 6.12 million rate.
The key data point in this below expectations result is that sales were expected to rise because home buyers have until June 30 to close contracts and qualify for the home buyers tax credit. Even though the tax credit has now expired, its effect remains in the data through the end of this month.
Bottom line: The residential property market in the US is now in high season. If the housing market were improving, we would not have this kind of weak data.
Three months ago, I pointed to seasonal factors, saying in effect that the summer selling season would show definitively whether housing is double dipping:
[O]nly two of the twenty markets in the Composite-20 showed price gains last month. This narrowing of price inflation began in the summer of 2009 and has continued every month since then. While much of this may reflect seasonality, it is not reflective of a housing market that is about to take off.
Bottom line: US house prices are no longer in freefall. But, the market remains fairly weak. Some of the weakness right now is due to seasonal factors. However, the data for the Spring and Summer will help us gauge how much is seasonality and how much is softness in the market.
–Case-Shiller: Two housing markets up from last month, nine up year-on-year
While existing house sales were up 19.2% compared to a year ago, the data since that time are not encouraging. Meredith Whitney looks to be right. The US housing market is double-dipping.
What will the Feds do next to try to keep the housing market from dipping back to reality? If sales are falling even as the tax credit is still in effect, are there any arrows left in their quivers? Or other quivers alltogether?
I think it’s game over. The Feds are out of ammo here. My hope is that, despite the likely severity that an economic double dip would mean, house prices have fallen almost enough. A good scenario would be 10% more down across the board. A bad scenario would be 30% or more.
Remember, Japan and Hong Kong saw something like three-quarters losses on residential property during busts. This is wholly conceivable as a downside. That would mean a severe overshooting of course and would ultimately be a boon to cash buyers, but a nightmare for those with high leverage.