Latest Home Sales Data – More Ugly News

Sales of existing homes, as opposed to newly built homes, rose last 6.5% month. The news is covered here at MarketWatch.com:

Existing-home sales rise 6.5% as prices plunge

The key points to note are not the increase in sales, which is predictable given the flood of distressed [i.e. foreclosed] properties on the market at give-away prices, but the continuing drop in prices and the fact that even low mortgage rates have not revived the market. The uptick in purchases probably is meaningless as an indicator of lasting improvement.

For the year as a whole home prices have fallen 9.3%, but the year to year drop for December was even sharper at 15.3%. This rate of price decline is the greatest since the Depression, and suggests that the housing market has yet to reach a bottom.

Mortgage rates too have failed to turn things around largely due to the fact that credit is so tight. Even with low rates and therefore low monthly payments banks are being very selective about who they lend to. Given the disaster of the past few years I cannot blame the banks for being circumspect, and I doubt that there will be much change in the first quarter this year.

On a brighter note the data shows that the jump in sales during December cleared away some of the inventory overhang. The number of for sale but unsold homes fell to 3.63 million or about 9.3 months of sales compared with 11.2 months of sales in November.

Overall the housing market still looks grim. There is no reason to rush out and buy a home right now because bargains will only be more plentiful as we approach spring. The ratio of house prices to rents, or prices to wages are still out of line with historical norms. the ludicrous bubble has not been fully worn away and probably won’t be until at least mid year. Then those of us with cash can start looking around for opportunities. The key to remember is that prices are highly likely to overshoot down below the historical norms as the recession bites and removes potential buyers from the market.

Housing will stay a buyers paradise well into 2010.

Meanwhile all the stores who make a living selling stuff that homebuyers use are having an extremely hard time. Home Depot is a good example: they are planning to shed 7,000 jobs as they try to stay profitable in what is a very weak market for home products.