The recovery in the US housing market appears to have slowed. Construction of new homes was essentially flat in September. NAHB builder's sentiment fell to 18 from 19 last month. This was the first decline in the NAHB in five months and the decline adds to concern about the sustainability of the US housing recovery. Housing starts for September rose by just 0.5% and building permits fell by 1.2%. This was the biggest decline in building permits in five months -another discouraging sign for the housing industry. US mortgage foreclosures rose to a record high over the last three months. The housing market outlook is hurt by rising unemployment and concern that the 8k tax credit for first time home buyers will be allowed to expire at the end of November. The home buyers tax credit coupled with improving affordability helped to boost the US housing market. The U.S. Congress is debating a possible extension of the tax credit for first-time home buyers but as yet has not passed new legislation to extend the tax credit.
On October 23rd at 10:00 ET US September existing home sales will be released. Existing home sales measure the number of previously constructed homes, condominiums and co-op's that were sold during the month. The report is a good indicator of demand for housing and strength of the economy. The trade will compare the September report with the prior months release and focus on the inventory and median sale price of existing homes.
August existing home sales declined by 2.7% to 5.10 mln. This compares to 5.24 mln units in July. The median sale price in August fell by 4,500k to 177,700k. 31% of the existing home sales in August were made up of distressed home sales. The inventory of homes fell by 2.1% to a two year low of 8.5mln. Existing home sales remain 3.4% above the 4.93 mln a year ago rising 15.2% over the last four months. July existing home sale rose 7.2%. The July rise partly reflected the impact of the home buyer's tax credit. The National Association of Realtors (NAR) says the strength of the July report and respectable results in the August report suggest this sector of the housing market is very close to a self sustaining recovery. The NAR's chief economist says the tax credit is working but the August decline demonstrates we can't take the housing rebound for granted. What happens to demand for housing if the tax credit is not extended? US car sales fell sharply in September after the cash for clunkers program ended.
September existing home sales are expected to rise to 5.35 mln units from 5.10 mln last month. The September existing home sales report is likely to confirm that the US housing market recovery has slowed. Tight credit conditions, concern about rising unemployment and the imminent expiration of the tax credit for first time buyers will contribute to the slowdown in the housing market. The September report is expected to show another drop in inventories and lower median sales price for existing homes. The drop in inventories may reflect unsold homes being taken off the market, not strong underlying demand. Lower priced homes are selling but high priced homes are not. The report will likely confirm that house prices have not reached a bottom. Fiserv, a financial and analysis firm says that home prices are likely to sink another 11% by June of 2010 because of the deflationary impact of ongoing foreclosures.