Michael Zoller at Moody's Economy.com said the surprisingly weak report negates several months of gains.Economists were expecting 440k sales, instead the number came in at just 355K. CalcRisk has hit upon the really distressing figure here: the ratio of existing homes being sold to new homes being sold has hit an all-time high.
"Price discounting eased in November, although the median new home price is notoriously volatile," he said.
The ratio of existing to new home sales increased at first because of the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.What this means is the number of homes available on the market is increasing rapidly, both with a supply of new homes being built that are not being sold, and available homes merely changing hands. New homeowners are NOT making the jump from renting to ownership, and that means there's too many homes on the market right now, even with the Obama tax credit.
The recent increase in the ratio was partially due to the timing of the first time homebuyer tax credit (before the extension) - and partially because the tax credit spurred existing home sales more than new home sales.
On timing issues: New home sales are counted when the contract is signed, and usually before construction begins. So to close before the original Dec 1st deadline, the contract had to be signed early this Summer. Existing home sales are counted when escrow closes. And the recent surge in existing home sales was primarily due to buyers rushing to beat the tax credit.
That means supply is too high...and that means home prices are going to start falling sharply again as opposed to stabilizing.
2010 is going to be ugly for the housing market, folks. Really ugly. We're hitting now the third wave of home price drops.
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