Home Sales

Merry Christmas people, there is simply no good news here:

Median Price fell to the lowest since 2004. We’ve basically wiped out the second Bush term in home equity.

Rate of existing homes sold dropped to 4.49 million units, on an annualized seasonally adjusted basis. Give you an idea, that’s less than the rate of existing homes being sold in the south alone in Jul of 2007. It’s less than being sold in the West region alone in August of 2005. It represents a 40% decline year on year. It’s nearly the floor for home sales going back as far as the census provides data. 

Moreover, we’ve had a "break down in seasonal pattern." What does that mean? Well if you look at most economic series, they have an annual pattern of peaks and dips. Filtering out that pattern is what seasonal adjustment does. However, when the bug hits the windshield, the entire annualized pattern can break down, in sales, employment, or other data series. 2006 was a bad year, but it still had a recognizable annual pattern, 2007 had a sort of transporter accident from Star Trek version of it. This year? A mass of dying flesh. You can see that on the chart.

To give you an idea, in the last two recessions, we have not had a break down in the seasonal pattern, 2000 and 2001 both had it, though there was a flat part in 2001 after 911, the normal rise to a spring peak reasserted itself, and the later summer peak was good news. We’ve killed the goose laying the golden eggs.

Prices cannot stabilize at these levels. We have not hit a bottom, attempts to enforce a bottom would require a thorough going regulation of the market with price supports and all of the trimmings. Doable, but probably not a good idea without some clear idea of what upward lift in value will make those price supports viable over the long term.

Now for the really good news. Since creation of new money depends on loans on the books, and residential real estate is a large chunk of that, it means there is further erosion of the monetary base. Bernanke, Captain Carnage being at it again, believed in the spring that banks were retrenching because of losses that had already occurred – previous deflationary expectations. Instead, the data indicates that there are still more losses to come, and while past losses are clearly a large part of the credit crunch – which can be measured in the spread between the rate that central banks lend, and the rate consumers actually pay – is that there is an entirely reasonable expectation of further deflation in core wealth.

Stirling Newberry

Stirling Newberry