The pace of seasonally adjusted existing-home sales in the U.S. rose 7.7 percent from 4.67 million in July to a 5.03 million pace in August, up 18.6 percent from the 4.24 million unit pace in August 2010 which was down 19.0 percent year-over-year and the second lowest pace on record.
The median sale price for existing-homes in August was down 5.1 percent year-over-year (versus a 4.4 percent drop in July) to $168,300 as distressed sales accounted for 31 percent of sales volume, up two points from last month but down five points year-over-year. Total housing inventory at the end of August fell 3.0 percent to 3.58 million, a 8.5 month supply, down from 9.5 months in July.
Existing-home sales in the west jumped 18.3 percent from July to August, up 20.6 percent on a year-over-year basis on a median sales price that was 13.0 percent lower versus 7.1 percent lower last month.
∙ Existing U.S. Home Sales Pace Up 21.0% Year-Over-Year In July [SocketSite]
∙ August Existing-Home Sales Rise Despite Headwinds [realtor.org]
∙ Existing U.S. Home Sales Pace Up 7.6% To Second Lowest On Record [SocketSite 2010]
Record low interest rates and prices continue to fall, crazy times. What happens when rates go back up?
What happens when rates go back up?
Good question. Check back in 2014 and we’ll see if there is any talk about raising rates. It would take a material 2-3% rate hike for a sustained period of time. The govt knows they cant jack rates back to 7-8% anytime soon. So we’re probably at a low point here and the rate will bounce up and down 1 to 1.5% in slow .025 increments over the next 2-3 years. Seriously, do people think the government is going back to 7, 8, 9% interest rates anytime soon. No chance. Even if they did, prices would obviously go down and there would be a big problem with foreclosures, etc.. but the real impact to the buyer would be negligible since your cost of capital would be higher. You’ll not find me trumpeting the ‘bull horn’ by any stretch, but the market is fairly stable and buyers are buying, sellers are selling. Liquidity.
@Eddy, well said. Drastic rate increases would completely screw existing owners and cause riots on the white house lawn. It’s economic suicide and it just won’t happen. Rates will go up, but it will be done responsibly.
“Rates will go up, but it will be done responsibly.”
“Responsibly” means that we shouldn’t be propping up housing prices to unsustainable levels that are only feasible because people have low monthly payments.
We’d always be better off with lower prices and higher interest rates.
FYI, the government does not set mortgage interest rates.
The Fed may indeed “know that they can’t jack rates back to 7-8% anytime soon”, but that doesn’t have to do directly with a fear of home prices going down or an increase in foreclosures. Core inflation is next to nothing and the unemployment rate is over 9%, that’s why rates aren’t going up anytime soon.
Interest rates are going down if Operation Twist is in any way successful.
Do people really think that if the housing market were more or less normal, but we had sub 2% core inflation and ≥ 9% unemployment that interest rates would be 7-8%? Is that some historical mean or something?
Who can say where rates will be in 2 years?
Our government continues to risk a major currency collapse. The economy continues to be so sick that the Fed CONTINUES to engineer unprecedented support to selected markets. (unsurprisingly, the Fed is trapped without an exit strategy… obvious as soon as they started this madness).
Operation Twist has begun, which is arguably the covert QE3 we’ve all been waiting for (as I’ve said for some time, QE3 would not be named QE3). Some will argue that Twist is not QE3, but it depends on the mechanics. All I know is that they’re buying $400B of Treasuries, and the market threw a hissy fit. (some say it’s because of Twist, but I think it’s because Operation Twist is smaller than the Welfare Goddess Financial Parasites wanted.)
Who has any idea how this will work? As stated, the Fed is trying to lower long term rates such as 10-30 year Treasuries. many fixed rate mortgages are tied to (but not equal to) 10 year Treasuries, so a drop in 10Y may drop a 30Y FRM. But mortgages are often the 10Y plus a risk premium. Depending on future risk premia (not controlled by the Fed) 10Y Treasury rates could fall but we still may see mortgage rates rise if the risk premia increases enough.
I’ll be interested to see what happens to banks in this environment. The banks have been borrowing at 0% and lending out at 3-5% (ZIRP is yet another prolonged covert bank bailout). Twist flattens the yield curve, which impairs bank earnings.
We could see a TBTF bank (BofA anyone?) blow up from this as example. That will certainly not cause mortgage rates to fall.
The Fed is slowing finding itself in a bind. It has internal strife (no longer unanimous which is typical of Fed meetings), and political opposition to Fed meddling is increasing. Fiscal policy (what the govt does) has been crippled due our comedy that is Congress. But the Repub letter to the Fed shows that the Fed will be politicized, and will have difficulty remaining “independent”. Thus, monetary policy (what is done by the Fed) is also in jeapordy.
Increasing austerity in Fiscal/Monetary policy during a Great Recession, with a zombie TBTF banking system… a recepe for depression.
But as I’ve said for 2-3 years now
1) there is absolutely no way to forecast the RE market, because it is so dependent on Washington. Thus, one must use politics and not economic fundamentals in order to forecast.
2) this train wreck will take many years if not decades (yes plural decades).
Japan still looks to be the best we can hope for.
“We’d always be better off with lower prices and higher interest rates.” — if by “we” you mean non property owners, then yeah maybe. Existing property owners will not be better off with negative equity and neither will lenders when we walk away from the investment.
The spread between 10-yr treasuries and mortgage rates has widened considerably. The Fed’s interest rate moves bail out the banks – even more. They do very little for the consumer (or the economy). Sigh.
if by “we” you mean non property owners, then yeah maybe. Existing property owners will not be better off with negative equity and neither will lenders when we walk away from the investment.
Absolutely not. By “we” I meant responsible homeowners. The responsible people still have tons of equity and will still see massive profits (although lower than before) even with price drops at this point. It’s the people who paid bubble prices and who cashout-refi’d to death who deserve problems and are largely being bailed out instead.
You’re implying that in order to be responsible, you had to buy property 15+ years ago? Get real man. Not everyone had that option.
So where are people looking up “the spread between 10-yr treasuries and mortgage rates”?
Bankrate.com’s Sept. 14, 2011, weekly national survey of large lenders indicated that the 30-year fixed is down -0.03 since the last survey, but I’d love to have a better source and one that shows the relationship to the 10 year on a graph is even better.
“You’re implying that in order to be responsible, you had to buy property 15+ years ago? Get real man. Not everyone had that option.”
No, I’m saying people paying bubble prices were often irresponsible. Not everyone did so, and it doesn’t require buying property 15+ years ago in all cases.
Furthermore, even if certain (and many irresponsible) individual owners are hurt, the housing market as a whole would be better off.
@sfrenegade, in a perfect world maybe you are correct. We’ll never know because we’re not going to let the entire system collapse so we make housing affordable to everyone. There was already a massive correction and we largely survived the dip with many many casualties along the way.
Honestly, anyone that is waiting for housing to return to 1996 levels is dreaming. Greenspan was irresponsible for allowing lending standards / practices to get out of hand and the consequences to his actions have been severe. Letting the markets implode would be equally irresponsible. The gov / fed are doing the right thing at a macro-economic level even though it does not make housing more affordable for non-owners.
Yes, people we’re often irresponsible. No disagreement there. Far and away, the people who deserve to get burned are those who took out unaffordable short term loans at temporary low rates. And rest assured, they will get burned since refinancing is a bitch now. But there’s no need to dick over the remainder of people who went along with a steady 15-30 year fixed.
“The gov / fed are doing the right thing at a macro-economic level”
They are so not doing the right thing. The mere fact that the TBTF banks only got bigger shows clearly that they are not doing the right thing.
Add in that there have been essentially no prosecutions for what happened, they are now trying to re-blow the bubble, and are transferring public funds to the financial powers, further reinforces the fact that they are not doing the right thing.
“The gov / fed are doing the right thing at a macro-economic level even though it does not make housing more affordable for non-owners. ”
Disagree with you there. As lyqwyd said, Too Big To Fail is a failed policy.
Housing itself isn’t the problem (anyone thinking mortgages were the whole problem isn’t focusing on the problem), but kg was focusing on the knock-on affects of housing, since this is a housing blog and I responded to that. The real problem is that no one has the balls to put banksters into receivership and put some of the criminals in jail. And when I say banksters, I include companies that were deeply involved in finance like AIG — why the hell hasn’t that company been sold off for parts yet?
If the people in finance are really our best and brightest, we should hire the 10 smartest people to join Treasury at a $5M/year salary and figure out how to fix this. It would be a relative bargain. Unfortunately they aren’t, and their whole industry has government filling their pockets, despite their protests to the contrary.
“We’ll never know because we’re not going to let the entire system collapse so we make housing affordable to everyone.”
Honestly, it’s not even clear the entire system would have collapsed. People just say that because the banksters claimed it. Unfortunately we’ll never know because no one has bothered to figure it out. Instead, we’re doing the same thing we did several years ago and pretending that it worked.
Too Big To Fail is a failed policy.
How so? I guess we should have let AIG fail. No issues there, right. And the problem was mortgages, or at lease mortgage derivatives and the hedge strategies leveraged by large banks that caused this issue.
You’re confusing policy with execution. The policy is/was right. 99% of the country will never understand the real issues we faced and how TARP and the other remedy actions taken enabled a system that was on the brink of disaster to effectively stay open for business. You’re not going to get the answer watching some HBO made for TV movie either. There was a similar crisis in the 90s with the Long Term Capital Management hedge fund that tanked over the course of a few days. The banks ended up buying this beast out for dollars on the penny to cover the margin. Ironically, those same banks ended up making a fortune on these ill fated hedges.
Actually AIG was not policy at all, it was entirely execution. The policy is allowing TBTF entities to exist. And that is a demonstrably failed policy. If a company is too big to fail (i.e. it’s failure can cause the national and/or global economy to fail), it is too big to exist. It is no longer a private company, but only has the appearance of one while business is good. As soon as business goes bad the government must step in and save the company.
Rather than dismantling the TBTF companies in an orderly fashion, the gov has actually done the opposite: it has allowed them to grow larger, while at the same time allowed them to throw all natural accounting rules out the window.
This is absolutely wrong policy. They have not fixed anything as demonstrated by the consistently high unemployment, continual European sovereign crises, and the continued Fed intervention. None of the problems that caused the great recession have been fixed, and they don’t even really have any plans on how to fix it.
“Rather than dismantling the TBTF companies in an orderly fashion, the gov has actually done the opposite: it has allowed them to grow larger, while at the same time allowed them to throw all natural accounting rules out the window.”
Right, this is the operative point, eddy, and it has absolutely nothing to do with whether housing is affordable or not. If the argument is that we need to bail out this company because it’s too big to fail, we should make it no longer too big to fail.
If anything, policies have made all of these companies even bigger — existing banksters “bought” failing banksters. I don’t see how that is or was the right policy. The right answer is to fire existing management with extreme prejudice and give shareholders a massive haircut, as what would happen when any normal company failed, but just to do so in an orderly manner. Call it nationalization, pre-privatization, pre-packaged bankruptcy, whatever.
lyqwyd nailed it in his last paragraph. You have a loved one with a severe drinking problem. An unsustainable problem.
You can either force them to quit or materially reduce their drinking, which would cause a severe hangover and crippling withdrawal symptoms. Very painful.
Or you can let them keep slowly killing themselves in front of you, hoping that a magical cure presents itself sometime in the future, before it’s too late.
These are the basic choices. Both options are painful options – there is no panacea.
These arguments are like trying to solve Apollo 13’s issues on the ground and prior to take off. It’s a different / delicate situation when you have a few lives at stake over 200,000 miles from earth and you have to deal with the situation you’ve been dealt. To go with this analogy, we still don’t have our men back on terra firma so it’s a little premature to start asking the guys at the control to start taking the craft apart to fix the problem. There will be a time for that in the future; and you’re right to question whether our govt / fed have the capability to resolve this issue in the long term, but there are still very big fires to put out. You could make the same rant against the US Government (i.e., fire them all, send a few crooks to jail and start over with more qualified people). Guess what, we elected all of these people. And no one else is stepping up to take the job.
This has gone a little off tangent for me and I’m not one to get into political issues so I’m checking out…. Peace.
Here’s a much better analogy:
TBTF is like cancer. The country needs surgery to remove the tumor, and chemotherapy to keep it from returning. Instead we’ve been given 2 aspirin and sent home.
TBTF is the root cause of what has gone wrong in our economy. Until it is dealt with, there can be no real recovery.
They will never abandon TBTF. If you are a politician, it’s pretty handy to be able to call up BofA and ask them to buy Countrywide so the sh*t doesn’t hit the fan on your watch.
Trust me, they are scratching each other’s backs. As long as they are willing to be there when the government needs them, the government will support them when they need the favor returned. TBTF is simply the excuse they give to the public for handing them wads of cash.
Whether the policy is right or wrong is irrelevant: it’s right for the politicians, so it will continue.