Existing Home Sales Plunging

Today is a big day for housing data, and none of it looks good.

In November nationwide, existing home sales fell to a seasonally adjusted annual rate of 4.49 million, down 8.6% from 4.91 million in October and down 10.6% from a year ago. All regions of the country were down on a month to month basis. The worst hit was the Northeast (-12.0%) followed by the South (-10.9%). The Midwest was down 7.4% while the West held up relatively well, down just 4.3%.

On a year-over-year basis, the West really stands out as an exception, being up 17.9%, as the other regions were all down between 16 and 18%. However, in many important parts of California, more than half of all existing house sales now involve houses that have been foreclosed on.

Housing inventory actually increased slightly with 4.203 million houses available for sale, up from 4.198 million last month, but down slightly from 4,217 million a year ago. Falling sales with steady inventory leads to higher months supply (think of it as an inventory turnover rate). The months supply rose to 11.2 months, matching the high for this cycle set back in April, from 10.3 months in October and 10.1 months a year ago. In a healthy market, months supply are usually around 5 months, and at the height of the boom fell below 4 months. Prices also fell both month to month (median down 2.8%, average down 2.3%) and year-over-year (median down 13.2%, mean down 12.3%).

Falling transactions, static inventories, and falling prices. Even though mortgages are getting cheaper, following treasury note levels down to absurdly low levels, they are only available to those with spotless credit. Even there, what happens to the banks that make these mortgages when interest rates go back up as they inevitably will? They will be stuck unless they unload them on Fannie Mae (FNM) and Freddie Mac (FRE), in that case we the taxpayers will be stuck with them.

Relative to rents and incomes, housing prices are still too high. That’s relative to existing rents and incomes. With unemployment rising incomes will be falling, and there is a good chance that there will also be downward pressure on rents (and increased demand for refrigerator boxes, for shelter, demand for large appliances will be way down).

This is not over yet folks, not by a long shot. More write downs to come throughout the banking system. Avoid banks like Comerica Incorporated (CMA - Analyst Report), Zions Bancorporation (ZION - Analyst Report) and Fifth Third Bancorp (FITB - Analyst Report).  

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