US existing home sales dropped by the fastest rate on record in December. In fact it was the biggest monthly drop in over 40 years.
The US National Association of Realtors (NAR) in Washington, DC released figures on January 25, 2010 that show US existing home sales fell 16.7% in December from November on a national basis.
These figures include single family, townhouses, condominiums and co-ops. The seasonally adjusted annual rate of 5.45 million units in December 2009 represents an overall 16.7% drop from 6.54 million units in November 2009.
On a regional basis, the West was the strongest market in December with a -4.8% drop, South -16.3%, Northeast -19.5% and the Midwest -25.8%.
This reverses a positive trend for US existing home sales in the fourth quarter of 2009, capping the otherwise positive year with a negative note.
| December 2009 – November 2009 | - 16.7% decrease |
| November 2009 – October 2009 | + 7.4% increase |
| October 2009 – September 2009 | + 10.1% increase |
The overall 2009 trend of existing home sales can be seen on the chart below:
However, not all the news is bad. The December sales do represent a 15% increase in sales from the 4.74 million-unit level of December 2008. This continued the positive trend in 2009 fourth quarter increases from those of 2008.
| December 2009 – December 2008 | + 15.0% increase |
| November 2009 – November 2008 | + 44.1% increase |
| October 2009 – October 2008 | + 23.5% increase |
When you compare the US to the Canadian figures, you can see that in the fourth quarter of 2009 the Canadian real estate market moved with a much higher momentum into 2010.
| December 2009 – December 2008 | + 72% increase |
| November 2009 – November 2008 | + 73% increase |
| October 2009 – October 2008 | + 41.5% increase |
The overall US existing home sales market actually rose by 4.9% in 2009 from 2008 levels with average prices also increasing by 1.5%. However, the December 2009 sales only clawed back earlier gains.
There are no surprises in the data, according to Lawrence Yun, NAR chief economist:
“It’s significant that home sales remain above year-ago levels, but the market is going through a period of swings driven by the tax credit,” he said. “We’ll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit. By early summer the overall market should benefit from more balanced inventory, and sales are on track to rise again in 2010. However, the job market remains a concern and could dampen the housing recovery – job creation is key to a continued recovery in the second half of the year.”
So why has the US real estate market suddenly slowed?
Was it caused by the end of the first US Governments tax credits and stimulus packages? Sure, that is a major contributor. Another factor is that a lot of the recent US existing home sales were generated by distressed or foreclosure sales that are now drying up. Both of these factors caused short-term gains.
But to see the future prospects and long term health of the US real estate market, you need to look elsewhere.
You can point fingers in many directions but the basics come down to American’s job prospects, credit availability and their consumer dept.
At a January 25, 2010 event at the White House, US President Barack Obama said that, “creating good, sustainable jobs is the single-most important thing we can do to rebuild the middle class and I won’t rest until we’re doing just that.”
However, most economists expect the US unemployment rate, currently at 10.0 % to remain high with a sluggish economic recovery.
US mortgage rates also appear to be on the rise. According to Freddie Mac, the “National Average Commitment Rate” for a 30-year, conventional, fixed-rate mortgage rose to 4.93 percent in December from 4.88 percent in November.
US consumer retail credit card defaults were at near record levels during the late 2009 holiday shopping season according to Fitch Ratings a global consumer credit ratings agency.
Michael Dean, Fitch Ratings Managing Director recently stated, “We do not foresee any meaningful improvement in the retail card credit quality in the coming months. U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card charge offs will continue to reflect those pressures. Households will remain cautious with their spending and further curtail their use of retail cards in 2010.”
In their January 14, 2010 news release, Fitch Ratings states that:
High unemployment and ongoing household deleveraging will continue to limit demand for consumer credit in 2010. Consumer confidence as measured by the Conference Board remains historically low despite rising in the most recent period and unemployment is expected to remain elevated averaging 10.2% in 2010.
This does not bode well for prospects of a robust rebound in retail sales or credit usage in 2010 as the employment situation and economic environment overall continues to weigh on consumers’ spending decisions. The latest Fed figures show revolving credit usage decreased at an annual rate of 18.5% in November – the largest dollar-value drop since 1968 and the 14th consecutive decline since October 2008. As long as the employment and income growth remain weak, demand for consumer credit – especially retail credit – will be limited.
The “Global Financial Crisis of 2008” hit US consumers hard. The mortgage crisis and foreclosure crisis that followed brought them to their knees. Now they appear to be tapped out by the debt that’s left over.
US real estate markets will recover. Whether 2010 is a “Road to Recovery” or a “Path to Recovery” has yet to be seen.
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