A useful summary of data points from John Mauldin illustrates that the US housing market is still receding. This matches the IFC chart showing that sub-prime mortgage problems are not expected to peak till the beginning of the year. (That chart is in the July Review here.)
First the inventory of existing homes rose yet again to 4,581,000, which is an increase of more than 1,000,000 since March alone. It is more than double the supply since the beginning of 2005. In January there was a 6.6 months supply of homes for sale. Now it is 10 months. Over 500,000 homes are in the process of foreclosure and will soon come onto the market. I think that means in the near future we will see a 12 month supply of existing homes for sale.
Remember, that is an average. In some markets, that means there may be a two year supply and a three month supply in areas of higher demand. It is going to become a buyer’s market in the middle of next year as sellers
Want to buy a condo? Existing condos for sale have risen by 35% since January to 661,000. That is almost 12 months of supply, and there are a lot of new condos coming onto the market as there are a lot of construction projects that are just now nearing completion.
New home sales in August saw the largest decline in three decades, down 8.3%. Mean new home prices are down 11% in the last five months. The inventory of new homes for sale is up to 8.2 months and rising.
Greg also spotted something which I suspected and hinted about in previous letters. The number of homes above $750,000 which are selling is down by over 35% from last year. Sales of home from $500,000 to $749,000 is down by 25%. Jumbo mortgages are just hard to find at rates that make sense. I think it is likely that Congress will allow Fannie and Freddie to take larger loans onto their books. I would not be shocked to see the number at $600,000, at least temporarily. Right now they are limited to taking $417,000 loans. With a 20% down payment that means about $525,000 for the sales price of the home.
These anecdotal data points illustrate that the adjustment in US housing has not yet completed and we can expect more downward pressure on consumption and by extension the economy in general.
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