Worse than September 2001

The National Assocaition of Realtors reported that pending home sales reached a record low last month, exceeding even the total from September of 2001. This story from CNN/Money fills in some of the details:

The meltdown in the mortgage market in August dried up the supply of buyers for homeowners looking to sell their homes, as an industry group report showed the lowest level of homes under contract on record.

The National Association of Realtors' pending home sales index fell to a record low of 85.5 from an upwardly revised 91.4 reading in July. That broke the previous low of 89.8 in September 2001, the period in which the terrorist attack shook buyer confidence. The trade group started the index in 2001.

This time the hit to home sales came from buyers having trouble finding the financing they needed to buy homes, coupled with the reluctance of some buyers to jump into the battered market.

Rather sobering assessments such as this are not likely to enable a speedy recovery:

Mike Larson, a real estate analyst with independent research firm Weiss Research, said that he would expect that the pending home sales might show some improvement going forward. But he doesn't believe it will be the sharp rebound seen after September 2001.

"I wouldn't be surprised to see a rebound from these truly awful numbers in the fall, in September or October," he said. "The credit markets are a little better than in August. But I'm certainly not expecting a strong, lasting surge. I think the existing home markets will stay weak into back half of 2008 and perhaps into 2009."

Larson said that economic fundamentals will be the next drag on home sales, as the Labor Department reported its first drop in four years in August of workers on U.S. payrolls, while economic growth is slowing.

Larson said that market psychology will also keep the pace of sales weak, as home shoppers who are having trouble getting what they want for their current home will pull out of the market, while other potential buyers decide to wait to see if the price of homes they want to buy continue to slide.

"It's the polar opposite of what we saw in '05 when people thought, 'If I don't buy now, I'll be priced out forever,'" he said. "Now they think it makes sense to wait."

With more and more observers pegging late-2008 or sometime in 2009 as the bottom, it seems increasingly unlikely that when a rebound does come, it will be anything more than a gradual turn after all the thrill of 2005 home buying has been expunged from the collective consumer psyche.

Of course, as they did when the housing bubble was inflating, mainstream media reports such as this will serve to exacerbate the current trend.