The September 22 report on housing prices from the Federal Housing Finance Agency has turned out to be not just depressing but depressingly accurate. According to the agency, prices in July fell 0.5% from June. That was worse than the 0.2% decline projected by economists. In addition the government agency revised previously released data to show a 1.2% drop from May to July instead of the earlier 0.3% decrease.
So it shouldn’t be any surprise that the September 24 numbers on August new home sales from the Department of Commerce were equally grim. The median price in Commerce Department figures fell to its lowest level in more than six years at $204,700. The top line numbers showed that new home sales were unchanged in August from a terrible July. The August sales rate in 2010 was down 29% from August 2009.
And before you get too comfortable with the top line numbers—if August was terrible but only as terrible as July, may be we’re seeing a bottom in the housing market, you might think—notice that it was only the statistical tool know as seasonal adjustment that prevented the August numbers from being worse than July’s. Without any seasonal adjustment August 2010 was the worst August on record, according to Briefing.com, and the second worst month since the government started collecting numbers. That’s especially disturbing and significant now because data series after data series from the government has recently shown huge swings from initial estimate to final figures because the usual statistical adjustments just aren’t working very well right now. Face it; it’s hard to know how to adjust numbers in the aftermath of the Great Recession. In a month Augusts top line numbers could get revised in a major way.
The big problem in the housing market shown in both the Commerce Department and the Federal Housing Finance Agency numbers is that foreclosures are swamping the market and putting immense downward pressure on prices. Banks seized a record 95,364 properties in August from borrowers who couldn’t make their payments, according to RealtyTrack.
That’s a huge addition to supply when sales of new homes ran at a rate of just 288,000 in July.
And that flood of foreclosed homes is big enough to completely overwhelm any boost to home prices from historically low mortgage rates. The average rate for a 30-year fixed rate mortgage dropped to 4.32% in September, according to Freddie Mac. That’s the lowest rate the company has seen since it started keeping track in 1971.