This morning's exisitng home sales numbers for July were bad. The decline was worse than projected, but in line with the "whisper"numbers. Calculated Risk has a good summary of the sales figures and excellent supporting graphs. The jump in inventory stood out to me. There is now 12.5 months of supply, where the average is closer to 6 or 7 months, which is going to hinder price increases. I am trying to look at the bright side. The annualized home sale rates was 3.8 million homes, which breaks down to 316,000 homes sold. I am not 100% positive, but think I remember hearing on Bloomberg radio earlier this year that the normal housing demand. based on demographic factors alone, is closer to 500,000 or 600,000 home sales per month. July's figures were well below the sustainable demand. Homes sales have to start increasing just to reach their sustainable average. Mortgage rates are historically low, and I don't see this changing in the near future. Low rates will attract buyers at some point. (Existing home owners that refinance at current low rates will have extra monthly cash, which is positive for the economy, but this is not a subject for this post.) The housing market will benefit in the coming months from low mortgage rates and pent-up demand (i.e. home sales reverting to their mean), at least that's my opinion.
The impact of the first time home buyer tax credit, which expired in April, inflated sales figures last year and earlier this year, and are weighing down numbers now. Calculated Risk said all along that the tax credit was providing an unsustainable boost to the housing market. But I didn't read or hear too much else about impact of the artificial demand. CR was correct, and today's numbers should not too shocking. I hope the government resists the urge to step into the housing market again. Potential home buyers waiting for further government assistance are going to miss a great opportunity.