Existing home sales plunge

The NAR (National Association of Realtors) reported that sales of existing homes plunged 16.7 percent in December from a seasonally adjusted annual rate of 6.54 million units in November to 5.45 million last month, the lowest rate of sales since August.
It is no coincidence that the sharp decline came just after what was believed to be, at the time, the expiration of the government's $8,000 homebuyer tax credit late-November, a stimulus program that has since been extended until this spring.

As incentive programs such as this one are more likely to "pull demand forward" rather than create new demand for housing, the property market will be watched closely in the coming months to see how big an impact this will have.

Since there is a huge difference in typical sales volume throughout the year - summer sales often two or three times the volume seen in January and February- seasonal adjustments will also play a crucial role in analyzing the data in the months ahead.

For example, the sales spike in October and November came at a time of the year when sales volume is typically declining into the year-end holiday season and, in the graphic above, this likely appears much larger than it would if the tax credit were to have expired in July instead of just after Thanksgiving.

Similarly, the January and February sales data to be reported in the coming months may see distortions to the downside since, what is normally a dearth of sales during this time of the year may turn into a virtual cessation of buying. The seasonally adjusted data that comes during these two months of the year is always suspect, this year, it may be downright nutty.

The NAR reported that the inventory of unsold homes rose from a four-year low of 6.5 months of supply in November to 7.2 months in December, but this statistic too is greatly affected seasonal factors. Given that optimism for the property markets in parts of the country has been rising and more potential sellers will think now is a good time to list their homes for sale, this combination of factors - fewer buyers and more sellers - could see the inventory numbers move much higher over the winter.

It's going to be another interesting year for real estate.