Homes sales down, sentiment up

The bottom that had been forming in the chart of existing home sales over the last year, aided by a growing number of foreclosure sales, developed a rather large hole during the month of November as reported by the National Association of Realtors.
It remains to be seen whether sales return to the 4.9 million rate average of the last year, the 8.6 percent tumble from 4.91 million in October to just 4.49 million in November helping to push the inventory level back up to the high for this cycle at 11.2 months of supply.

More importantly, the median sales price dropped a whopping 13.2 percent in November on a year-over-year basis, from $208,000 to just $181,300, the lowest level since early-2004. The AP reports that this is most likely the biggest annual price decline since the Great Depression (NAR records only go back to 1968).

Sales fell most in the Northeast (down 12.0 percent), followed by the South (down 10.9 percent), the Midwest (down 7.4 percent), and the West (down 4.3 percent). Existing home sales in the West were helped by the continuing high level of distressed home sales, the realtors' trade group estimating that 45 percent of all sales nationwide are either foreclosures or short sales.

Homebuilders aren't finding it any easier to sell real estate as the Commerce Department reported(.pdf) that new home sales also tumbled, falling 2.9 percent from an annualized rate of 419,000 in October to 407,000 in November, the slowest pace since 1991.
Sales have declined 35.3 percent from year-ago levels, the worst decline since April 1980 when new home sales plunged 50.5 percent. Inventory remains at historically high levels, averaging 11 months of supply over the last year, as builders continue to offer incentives and slash prices.

The median price dropped 11.5 percent on a year-over-year basis, from $249,100 to $220,400, however, these figures continue to be deceptively high due to the many financial incentives available to buyers that do not show up in the sales price.

In one of the few pieces of good economic news this week, the mood of the consumer, as measured by the Reuters/University of Michigan Consumer Sentiment Index, improved during the month of December, rising from the 28-year low seen last month.
The index rose to 60.1 from a mid-month reading of 59.1, up from November's historic low of just 55.3 as lower gasoline prices and some stability in financial markets helped to lift spirits.

The inflation expectations associated with this report are now getting very interesting. Survey respondents put the one-year inflation rate at just 1.7 percent, down from 2.9 percent last month, while the five-year rate came in at 2.6 percent as compared to 2.9 percent in November.

More than anything else, inflation expectations are driven by the cost of gasoline since these are the easiest prices for consumers to measure but, with food prices continuing to rise, it bears watching in the period ahead how inflation as reported in the government's consumer price index matches up with consumers' expectations of the same.