November is never a great month for home sales, but don’t let that fool you: today’s reports are truly gruesome, falling significantly short of very bearish expectations. New home sales, at an annualized rate of 407,000, are at their lowest level since 1991; existing home sales, which were running at a rate of over 7 million a year in 2005, are now down to less than 4.5 million.
The median home price in the US is now just $181,000 — down from $215,000 as recently as June — and total housing inventory for sale rose in months-supply terms (thanks to the drop in sales) and is now hitting all-time record levels of about one year’s supply.
All this is happening, remember, in an economy where roughly two-thirds of American households are owner-occupied. Owning one’s own home, something which for most of this decade was a definite asset, is now a serious liability. Millions of workers can’t move to somewhere with a better job market, and to make matters worse their net worth is now negative — which means that no one will lend them any money, even if they are current on their mortgage payments.
And prices have further to fall: as the commenters yesterday were quick to note, if you plug real-world numbers into a buy-vs-rent calculator, especially if you make the reasonable assumption that rents aren’t going to rise, it’s still generally cheaper to rent than to buy, plus of course you get much more freedom of movement, and the option value of being able to buy a home much more easily in the future after prices have fallen further.
I still think that trying to put an artificial floor under house prices by forcing down mortgage rates is a bad idea, even as it seems to be gaining traction with Team Obama. But you can see the attraction: it’s something, which at this point seems to be unambiguously better than nothing. And certainly the economy as a whole isn’t going to start growing again so long as house prices and home sales continue to fall at this kind of pace. But my gut feeling is that we’re in for a very long bear market in housing, and that any attempt to turn things around in the short term, if it’s successful, will prove to be short-lived.