Two gloomy sightings on the housing front at Bloomberg. The first was the release of wretched existing homes sales data for August, which followed a July that also showed serious deterioration. The only possible positive spin is that the rate of decline was lower in August than in July, but the August figures were an all-time low.
The second was a measured but pessimistic forecast on housing from former junk bond king Michael Milken (although Milken is more positive about the economy overall).
First, from the Bloomberg piece on existing home sales:
The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in August as the housing recession deepened.
“The existing homes market is now in freefall,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, New York. “The downside from here is still substantial.”
The National Association of Realtors’ index of signed purchase agreements fell 6.5 percent from the previous month, the group said today in Washington. The decline was more than economists anticipated and pushed the measure to the lowest level since the organization began tracking purchases in 2001. The gauge plunged 11 percent in July….
Compared with a year earlier, pending home sales were down 22 percent. Purchases declined in all four regions of the country, led by a slide of 9.5 percent in the South. The smallest drop was in the West, which notched a fall of 2.7 percent.
So far, the Fed’s half-point rate cut on Sept. 18 has failed to lower mortgage rates and boost demand. Average 30- year, fixed-rate mortgage rates ended last week at 6.42 percent, compared with an average 6.3 percent the prior week, according to Freddie Mac.
Buyers have been further constrained by the tighter lending standards and the shutdown of mortgage lenders such as American Home Mortgage Investment Corp. in early August that closed off access to credit.
“Fewer contracts were being written because of mortgage- availability issues,” said Lawrence Yun, a senior economist at the real estate agents group. “More than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments” from lenders.
A Bloomberg survey of 30 economists forecast the index would decline 2.1 percent from July. Projections ranged from a decline of 4.7 percent to a gain of 3.4 percent…..
“There is still no bottom in sight,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “Sales will continue to fall until there is a greater price capitulation by sellers. It still appears that we have not reached market-clearing prices to reduce the inventories of unsold existing homes.”
The U.S. housing market is unlikely to recover soon from the worst slump in 16 years, according to Michael Milken, the junk bond billionaire turned philanthropist.
It will be “quite a while before we have a robust housing market again,” Milken said in an interview today. “The idea that any loan against real estate is a good loan has never been a rational thought.”
The “basic assumption” that home prices will continually increase is wrong, said Milken, chairman of the Milken Institute, an independent economic think tank based in Santa Monica, California….
The U.S. economy will withstand the slide in housing, propelled by global growth, said Milken, 61, the former high- yield bond chief from Drexel Burnham Lambert Inc.
“Today the strength of the world’s economy is helping America and the United States, and I think that will soften the blow of our downturn in housing,” he said. “We have to realize, similar to the time of Galileo, that the whole world is not necessarily revolving around the United States and the amazing story of America.”