Livinglies's Weblog

The residential real estate situation is still looking quite bleak. The downturn (actually, the continuation of the earlier downturn – they were not two separate events) that I forecast last year has come, and come with a vengeance. If we may reminisce, the mainstream media was overrun with optimistic housing forecasts, primarily as a result of some minor metric upticks born from incessant .gov bubble blowing. From my post of June 22nd last year – As I Made Very Clear In March, US Housing Has a Way to Fall

From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit

Sales of U.S. previously owned homes rose in May to the highest level in six months as buyers rushed to beat a June tax-credit deadline, economists said before a report today.

Purchases of existing houses, which are tabulated when a contract closes, increased 6 percent to a 6.12 million annual rate, according to the median of 73 forecasts in a Bloomberg News survey. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.

Credit-induced gyrations will make the underlying health of the market difficult to determine over the next couple of months. A slump in builder shares since early May signals investors are concerned the damage caused by the end of government stimulus, mounting foreclosures and unemployment will exceed the benefits of lower mortgage rates.

Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May

June 22 (Bloomberg) — Sales of U.S. previously owned homes unexpectedly fell in May, a sign demand was probably pulled into prior months before a June tax-credit deadline.

Purchases of existing houses, which are tabulated when a contract closes, decreased 2.2 percent to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.

The decline raises the risk the retrenchment following the expiration of the tax credit will be deeper than anticipated. A slump in builder shares since late April has exceeded the retreat in the broader market on concern the damage from the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness.

Now, this is the BoomBustBlog version from March of this year where I made it crystal clear that housing will fall further and significantly. The government incentives are just market interference and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest