By Markos N. Kaminis
Wall Street Greek
The stock market hit the skids this past week, following a bummer of an existing home sales report. After four consecutive months of improvement, sales of existing homes slipped in August. The annual pace of sales was reported at 5.10 million through the summer month, short of economists’ consensus for a rate of 5.35 million and down from July’s 5.24 million. In the preceding four months, sales gains had accumulated 15.2%, but with unemployment still rising, something had to give. After moving higher through the first three days of the week, stocks gave back ground through the full period, with the Dow shedding 1.6%. Even so, August’s disappointing pace of home sales still marked improvement over the prior year figure of 4.93 million.
The National Association of Realtors attributed some of the real estate sales decline to an increasing flow of contracts entering the system, overloading it and thus driving longer closing times. If you are buying that story, I have a wonderful old historic bridge in downtown Manhattan that I would like to sell you. If you think the system cannot handle sales growth from this meek base, well then consider how well it managed just a few years ago. I know! I know! There has been major consolidation and buku bankruptcy in the real estate finance business, but this still sounds like a lame excuse to me. Especially while the real under-employment rate nears 20%, where “under” includes part-time workers who would rather be working full-time and the long-term unemployed, who the government describes as lost to the labor force.
New home sales, reported a day after the “existing” data, also missed expectations. The good news is that, earlier in the week, the Federal Reserve reiterated its interest in keeping housing financing affordable. Freddie Mac (NYSE: FRE) data agrees, indicating the national average fixed rate mortgage was locked in at 5.19% in August, versus 6.48% a year prior. AND we still can’t get this motor running!?!
Much of the last few months’ growth has rightly been attributed to first time homebuyer tax credits and the foreclosure flood. First time homebuyers accounted for roughly 30% of sales in August, while distressed property sales marked 31% of the total. Both sales segments were relatively unchanged from July, so it’s hard to attribute last month’s tiring to a change in either. The tax credit expires at the end of November, and so industry participants are pleading for its renewal; and we think they will get it.
There was, however, good news to report in housing inventory, where August’s 8.5 month supply marked improvement over July’s 9.3 month tally. With the sales pace slipping, it’s even more impressive to see inventory improve. This may mean the flood of foreclosures and other distressed sales might be easing in flow. Distressed sales continue to impact the average sales price of a home though, with the median price slipping by $4,500 to $177,700 in August.
Regionally speaking, sales dipped across the board against July’s plumped production, but were generally flat to higher when compared against prior year totals. Basically, the stock market has gotten past rejoicing in the fact that the world has not ended, and is now asking for more. It’s a “show me” market now my friends. That, and the economy, might pose a problem for your portfolio over the next month or two.