Existing Home Sales Miss Intensifies Housing Woes

Market Trends - 23/03/2015

The latest data point for the US housing market confirms prior theses that the great bounce in the housing market might be approaching an abrupt halt and major correction.  The ripple effect of housing should not be underestimated considering that for most Americans it is considered the single largest component of household wealth.  Sentiment towards real estate has a major effect on investors’ outlook as this could foreshadow greater spending or savings rate depending on the outcome of data.  In this case, the softening in the real-estate sector is coinciding with a major shift in the savings rate towards the upside.  No amount of spin seems to working for the American public as the Federal Reserve seeks to exit the crisis-driven mentality 6-years later.  Americans just aren’t buying it, whether the government driven rhetoric or simply cheap goods made in China.

The drop off in broader economic activity is surmised by today’s existing home sales number which printed below expectations.  This marks the fourth straight month of figures failing to overcome or meet estimates.  Not to mention, the head of the National Association of Realtors (NAR) responsible for aggregating the data, Larry Yun made a comment echoing previous remarks from Robert Shiller (of the Case-Shiller Home Price Index) that “unsuitable price levels” were to blame for the weakness in the existing home sales figures.  If housing prices are about to make a substantial correction, it can be expected with reasonable certainty that the rest of the economy is ripe for re-pricing.  Although equity indices continue to display broad exuberance across the globe, the level of complacency continues to rise with each additional point in the Dow Jones Industrial Average.  While valuations can still go higher, the correction is likely to be sharp, swift, and happen without warning, akin to the flash crash of 2010.


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