Housing market hits the wall

No putting lipstick on this pig

Fed Chief Ben Bernanke said last month that the “economic outlook remains unusually uncertain.”  One has to look no further than July’s data on existing home sales to see that what Bernanke said is playing out in the housing market.

July’s 27% decline was the largest on record and about double the expected drop that was expected among economists (see Existing home sales plunge to 15-year low).

There’s no putting “lipstick on this pig,” as the steep drop in sales was tied to the expiration of the tax credit, which allowed agreements that were inked by April 30 to close by June 30, and the heightened uncertainty in the job market.

Still, the plunge should not have been completely unexpected.  The Purchase Index, offered up weekly by the U.S. Mortgage Bankers Association, had fallen to the lowest readings since the late 1990s back in May (see MBA Purchase Index points to near-term housing weakness). 

And Pending Homes Sales, which look at contracts signed but not yet closed, took a beating in May, falling 30%.

 

Moreover, new home sales have lost more ground than expected in the wake of the expiration of the tax credit, housing starts and builder permits have come under pressure and sentiment among builders has taken a turn for the worse.

If the timely survey from the U.S. MBA is any indicator of where the housing market is headed in the near term, the market is showing signs of stabilizing, albeit, at a low level.

Still, the jump in supply registered last month could put renewed pressure on housing prices.