You might have been surprised to learn this morning that, with our economy in severe crisis, existing home sales actually jumped 5.5% in September, according to the National Association of Realtors. On the surface, that’s good news because increased sales help to shrink the inventory of unsold homes.
But the national median existing-home price dropped 9% in September compared to a year earlier. That could be because 35% to 40% of all transactions are deeply discounted distressed sales (bank-owned sales or sales by homeowners facing foreclosure), according to the Realtors.
More importantly, report tells us nothing about where the housing market is today. It’s essentially a snapshot of the housing market taken before credit markets froze in the wake of Lehman Brother’s stunning Sept. 15 collapse.
There’s an inherent lag in monthly existing home sales reports because closings happen a month or two after contracts are signed. So we won’t start to see the impact of this financial crisis until the November and December reports are released.
We should brace ourselves for some bad news. The worst housing problems until now were concentrated in a handful of states, including California, Florida, Nevada, Arizona, and Rhode Island. But unemployment is rising quickly, especially in the midwest. And it’s tough to get a mortgage anywhere in the country unless you have exceptional credit and solid finances.
Paul Ashworth, a senior U.S. Economist at Capital Economics in Toronto, told me today that we might start to see foreclosures spread to other states with weakened economies.
“We’ve got serious problems already,” Ashworth said. “It’s just another leg downward in a very big decline.”
Stay tuned Monday for the Commerce Department’s new home sales report, which should give us a better gauge of the current real estate climate; it counts sales agreements signed, rather than sales.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.