Tuesday, August 24, 2010

Existing Home Sales Plunge To A Record Low, Portland Area Unemployment Rate Remains Stubbornly High

Unless you were in the Cascades, at the coast, or hiding in a bunker, you probably noticed the headlines today reporting that existing home sales have plummeted to levels not seen since the mid 1990s. Months of supply is again at price eroding double digit percentages, and the stock of existing homes for sale is now higher than it's been in over a decade. All of this bad news is arriving in the middle of the summer selling season. What will Autumn and Winter 2010 bring? 2011? 2012?

This is the biggest % drop in existing sales ever recorded. Yes, it's a record. Never before in recent history have existing home sales seen the market lock up like it is here and now. Today. Regardless of record low interest rates, it's becoming quite clear that the supply of greater fools has evaporated, and nobody in their right mind is going deeper into debt with a bank loan to purchase real estate at current asking prices:

"The National Association of Realtors said sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest level since May 1995. This number is the lowest that the NAR has ever reported, and I can see why it spooked the markets, sending 10-year Treasuries breaking through the 2.5% level: we’re seeing less housing market activity now than we were even during the depths of the crisis."

"The news also means that there’s a big gap between buyers and sellers: the market isn’t clearing. Sellers are convinced that their homes are worth lots of money, or will rise in price if they just hold out a bit longer; buyers are happily renting, waiting for prices to come down. And entrepreneurial types, whom one would expect to arbitrage the two by buying houses with super-cheap mortgages and renting them out at a profit, don’t seem to have found those opportunities yet.

Houses are rarely a liquid asset; they were, briefly, during the housing boom, but now they’re more illiquid than ever. America is a country where two generations of homeowners have learned to consider their houses an asset; they’re rapidly learning that at times like these, a house can look much more like a liability. (And refinancing your mortgage is just liability management.) The enormous repercussions of that change in mindset are only just beginning to be felt."

Meanwhile, the key drivers for home prices (when not goosed by EZ debt financing ponzi schemes) are real wages and employment. It seems as though Portland is not faring so well when it comes to its job market and its unemployment rate. Keep in mind that our new and improved headline unemployment rates only include those who are actually filing and getting benefits.

Once an individual no longer gets a monthly unemployment check and drops off the dole, they typically stop filing or "looking for employment" with the state. They are no longer counted in the headline number as being unemployed. The actual unemployment rate is much higher than reported in the main steam media.

All of the data, graphs, and reality from a 10,000 ft perspective points in one very clear and simple direction: lower housing prices for the greater Portland area going forward. Buckle up, and plan accordingly folks. It's gonna be a rough ride...






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