Already steeped in its worst recession since WWII, the housing market is likely to worsen before it improves. In the New York session, the National Association of Realtors released its existing home sales report for August. The official consensus was already looking for a reversal of the previous month’s improvement; but the 2.2 percent drop in purchases would easily outpace the 1.2 percent forecast. Put into context, this drop in the annualized pace of previously occupied homes to 4.91 million units brought the reading back from its first 5.00 million-plus reading in five months and left the reading just above the 4.85 million, multi-year low set in June. Looking to the details, prices dropped 9.5 percent year-over-year, the biggest drop on record. Indeed this is the first steep to drawing buyers back to the market, but the the number of properties in inventory has just this past month edged back from a record. What’s more, this reading tallied activity through August - before the recent financial crisis struck the market. With lending grinding to a hault and premiums soaring, mortgages will have been more difficult to obtain and another round of delinquinces may have been forced. On the other hand, a long-term graph of home sales shows that the plunge that began 3 years ago is certainly leveled out. So while a drop to a new low may be in store for the next few months, the market may actually be forming the necessary base before a reversal.
In response to the data, the dollar actually rallied modestly against most of its major counterparts. With traders already tempered to the long-term malaise of the market, the drop in prices and pull back in inventories may be generating a glimmer of hope that the market bottom is forming.