For over a year now, I’ve been making the case that the US economy is in for a ‘double dip recession’ with the second dip likely worse than the first. While the jury is still completely out, more evidence surfaced this week supporting my position. This from Bloomberg on August 24, 2010 (highlighting added):
Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.
Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.
Stocks tumbled and Treasury securities rallied, sending yields on 10-year notes to the lowest in 17 months, on concern the industry at the heart of the financial crisis will lead the nation back into a recession. Recent reports on jobless claims and manufacturing point to a slowdown in growth that may prompt the Federal Reserve to consider additional moves to boost the economy.
“Today’s data do not bode well for home prices,” said Michelle Meyer, a senior economist at BofA Merrill Lynch Global Research in New York. “There is a decent chance we reach a new bottom for home prices. There’s going to be a prolonged, painful drop.”
The Standard & Poor’s 500 Index fell 1.5 percent to 1,051.87 at 4 p.m. in New York, the lowest close since July 6. The yield on the benchmark 10-year Treasury note dropped to 2.49 percent, while the two-year note yield touched a record-low 0.4542 percent.
Record Low
The pace of existing home sales is the slowest since comparable records began in 1999. The agents’ group revised the June sales figure down to 5.26 million from a previously reported 5.37 million.
Economists projected sales would fall 13 percent. Estimates in the Bloomberg survey of 74 economists ranged from 3.96 million to 5.3 million. Previously owned homes make up about 90 percent of the market.
Purchases of single-family homes also dropped 27 percent, the biggest one-month decrease in data going back to 1968. July’s 3.37 million annual rate was the lowest since May 1995.
Now that the first time homebuyer tax credit is gone, sales are tanking. While this tax credit may have revived this market, it did so only on a temporary basis. Home sales were simply accelerated during the tax credit program as individuals looking to purchase a home did so quicker in order to obtain the credit. The government, by initiating the tax credit, borrowed against future production or future home sales. Now that the credit has expired, home sales hit a 42 year low when measured in terms of the greatest one month drop. The simple explanation – folks who were thinking about buying a home did so before the tax credit expired.
Unfortunately, in my opinion, this is the only game politicians know how to play. They’re playing it with the national debt now. Politicians are spending money that we’ll probably never be able to pay back, borrowing against future production to such a great extent as to jeopardize our very future. In an attempt to revive the American economy, they’re spending the production of not only our children, but our grandchildren and great grandchildren. Unfortunately, whenever you borrow, there are consequences. And from where I sit, the state of the housing market may just be one symptom of our ill economy perpetuated by our government’s spending habits.
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