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Monday, September 25, 2006

NAR Existing Home Sales

In our top story tonight, the leader of al-Qaida in Iraq, Abu Musab al-Zarqawi, is STILL dead and someone else has taken his place.

August NAR existing home sales -0.5% @ 6.3M

Inside the number: Sales -12.6% from a year ago.

Median price -2.2%; $225K vs prior $230K; YOY -1.7%. 1st month to month price decline in 11 years - April 1995. Only the 6th such decline in 38 years of the index, 2nd largest decline ever, and largest since Nov. 1990.

Inventories at a 13 year high, +1.5% to 3.92M, a 7.5-month supply and the biggest since April 1993. Way inside the number: SFR inventories in the last year +55.3% and condos +75.5%.

David Lereah, chief economist for NAR: "The price drop has stopped the bleeding. Sales have hit bottom... I am confident the housing sector is picking up."

Lereah also said he expects prices to continue to drop for the rest of the year, which would keep sales from falling further. More on this later...

Sales -2.3% in the West and -0.8% in the South. Sales +1.9% in the Northeast and +0.7% in the Midwest. Lereah said the sales fell in the West because sellers still have not adjusted their expectations on prices. Really?? Do ya think?

Mr. Lereah is very optimistic, because he is paid to be so. We are entering a deflationary cycle in which sales will continue to deteriorate and further price reductions will not remedy the situation.

Why? Jobs and incomes have been shrinking during the boom phase, these were "good times". A recession tied directly to the cause of the boom lies in wait, the housing sector which created 25% of all jobs in the last 4 years, the severity of which TBD.

What will happen during "tough times"? Many will feel the warm yellow water hitting their heads, while the talking heads and powers that be will say its just warm rain, don't worry, be happy.

The "steroid like" debt fueled consumer spending spree will end and decline. During a deflationary cycle, it is possible that a decline in spending and massive layoffs will not be necessary, as prices decline, population rises, consumption increases and spending stays the same.

No amount of money printing & creative financing can overcome this. Why? like steroids, doubling the maintenance dose won't get the same results because the "demand" was artificiallly stimulated by loose money and low rates vs naturally by rising incomes & rents.

Prices have compounded exponentially faster than incomes and rents and nothing pencils out from an investment standpoint. i.e. rental rate = PITI breakeven

When the unwind comes, expect the same reaction going down as was felt going up and watch the greedy mania turn to fear & panic. I can't wait for Wend. when the new home sales numbers come out.

Keep it tween da ditches, we take it day by day and keep our eyes peeled to the sky, because it could be a name brand that pancakes us. Just my opinion, I could be wrong, this is The Nattering Naybob and your NOT!!


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