NEW YORK (Reuters) - Sales of previously owned U.S. homes dropped in July to their lowest pace in 15 years, implying further loss of momentum in the economic recovery.
KEY POINTS: * The National Association of Realtors said sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest level since May 1995. June’s sales pace was revised down to a 5.26 million-unit pace. * Analysts polled by Reuters expected existing home sales to tumble 12 percent to a 4.70 million-unit pace from the previously reported 5.37 million units in June.
KEITH SPRINGER, PRESIDENT, CAPITAL FINANCIAL ADVISORY SERVICES, SACRAMENTO, CALIFORNIA:
”The wheels are coming off the recovery. You’re seeing no aggregate demand at all. You have $12 trillion in stimulus and the best you can do 2 to 2.5 percent gross domestic product ... you should be at 7 or 8 percent.
“The problem with real estate is that real estate is the number one collateral on the planet for every loan. If you (a bank) have portfolio declines, you have less money to go out there and lend.”
GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON:
”That is certainly not going to bode well for the employment outlook. There is really nothing good that can be said about these numbers.
“Dollar/yen is clearly still being driven by risk aversion. (Investors are) buying yen as a hedge against obviously poor economic news in the U.S. right now. We think 80 is clearly the next level now. What this number does is two things: continued buying of yen as safe-haven hedge; investors who had been buying dollars as a safe-haven are now lightening on some of those dollar holdings given this absolutely awful housing number.”
MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA MERRILL LYNCH, NEW YORK:
“This is a worrisome report and while it reflects the volatility caused by the end of the tax credits, it also indicates a deterioration in the underlying trend for housing demand. This is evidence that we may have a mini double-dip in the housing market and we can now expect home prices to fall over the remaining months of the year. Supply at a new high is incredibly negative. For the overall economy, the dangerous link to housing is home prices and this report signifies that home prices should fall considerably faster, which could tip the economy back into a recession. We are, however, not quite there yet but this is a worrisome report.”
ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:
”This is further confirmation that the recovery in the housing market was 100 percent due to government support and had very little to do with fundamental improvement in the market.
”The problem that pushed us into recession to some degree still remains: There’s still imbalance in the housing market. Too many homes and too little demand at the current level of prices and interest rates.
“Even after four years of declines, housing remains the key threat to the (economic) recovery.”
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO:
”You continue to see weak prices in the bank stocks (due to) concern over real estate and it seems to be coming to fruition from the data we’ve been seeing. The market may be at levels that they eventually try to rebound from.
“There are still lingering concerns which will continue with us as we get closer to this 1 to 1.5 percent growth rate, which for the economy makes for a tougher environment.”
”Everybody was looking for a big payback relative to the second installment of the housing tax credit. I think it is just suggestive of an economy that is definitely slowing down but is not in recession. In particular, now that people are a little queasy about the outlook, that is what you are seeing.
Unfortunately it is a situation where we can’t have a meaningful recovery without a meaningful consumer recovery and we can’t have a meaningful consumer recovery without a recovery in housing. The best thing you can say about housing is that it is going sideways, and unfortunately right now it is sideways to down.
”The problem you have is that anyone who trades bonds for a living knows they are in a bubble, but with that knowledge in mind as long as the economy is not even approaching its potential growth rate, which is probably no lower than 2.5 to 3 percent, growth at 2 percent is going to widen the resource gap and is going to lead to further declines in inflation. Which means lower longer-term bond yields and no hikes from the Fed so you are seeing this situation where, given the kinds of people who trade bonds for a living know that they will not be the last one to exit so they are taking advantage of this once in a lifetime opportunity of potential deflation and are riding the yield curve down to as far as they can take it.
“They have not yet reached the point where they are saying they should take some chips off the table. I think a bunch of people did 50 basis points ago and now with yields at exceptionally low levels people just don’t feel the need yet to head for the exits. They are waiting for something from Bernanke or another three-digit handle on payrolls. If the next payrolls employment number printed 101,000 all these people would be heading for the exits in a hurry.”
GUS FAUCHER, DIRECTOR OF MACROECONOMICS, MOODY‘S ANALYTICS, WEST CHESTER, PENNSYLVANIA:
“Certainly it’s a poor number. We are looking at the back end of the tax credits and the weak fundamentals. I still expect sales to pick up later this year with a slowly recovering job market and the record mortgage rates. It’s going to be rocky for three to five months for the housing market.”
GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:
“Home sales were clearly a disappointment. We see now that the tax incentives only provided temporary support for the market. We have seen consumers hold back because of concerns about jobs. The big test going forward is whether the decline in mortgage rates in the past month or two will attract enough interest to get buyers back into the market.”
”It looks like some refinancing is kicking in. Refinancing rates are very attractive right now and home sales should respond to that. Rates are low enough to make a significant difference for potential buyers so maybe this will be the worst report we get for a while. People are just very cautious. They think prices could go down further.
“The drop in home values makes it harder for people to refinance. People are actually having to put more money down when they refinance to qualify for a lower rate. The pendulum has swung the other way: previously people took money out of their homes when they refinanced and now they have to put money in to qualify for refinancing.”
MARKET REACTION: STOCKS: U.S. stock indexes added to losses BONDS: U.S. Treasury debt prices rose DOLLAR: U.S. dollar fell against the yen and euro