Housing Data Sign Market Heading For Hard Landing

Existing home sales data released Wednesday shows the deteriorating housing market is unraveling at an even faster pace than expected, with no signs that a bottom has been reached.The data have left many market experts wondering if the sector is heading for a crash rather than a soft landing.Figures released from the National Association of Realtors show sales of existing homes fell to a seasonally adjusted rate of 6.33 million units in July, down 4.1% from June and 11.2% from July 2005. The decline was sharper than the 6.55 million-unit pace economists had been expecting.Sales of single-family homes fell even harder to a seasonally adjusted rate of 5.51 million units in July, down 5% from June and 11.4% from a year ago. At the same time, housing inventory rose 3.2% to 3.86 million homes for sale at the end of July. This represents a 7.3-month supply of homes, which is up from the 6.8-month supply of homes in June.“It’s another incremental data point indicating that conditions within the housing industry are deteriorating . . . and it doesn’t look like we’re anywhere near a bottom,” said Raymond James analyst Rick Murray.“Inventories are not only still growing — but the rate of growth continues to accelerate,” he said.He also noted that the inventory of single-family homes grew at a faster pace than condominium inventory did. Up until now, condos had been responsible for much of the inventory glut in the market. With single-family home inventory now escalating, the housing correction is broadening.Most market experts now believe the housing sector is heading more toward a crash than a soft landing.“A hard landing is certainly more likely than a soft landing,” said Mr. Murray. “There is too much excess inventory in the market. And the only way you’re going to clear that inventory is to lower the price.”Mr. Murray said he wouldn’t be surprised if some home builders were forced into bankruptcy, although he said it’s too early to predict if any publicly traded home builders will face this fate.Public homebuilders are better capitalized than they were in the last cycle and therefore better able to weather the downturn. However, Mr. Murray said public builders that continue to open new subdivisions and construct new homes on spec in this weak environment are facing a risk.“We see many companies in the industry extending themselves from a capital base perspective to continue to grow their inventories, which is a bit concerning,”Mr. Murray said. Nobody should be adding more inventory, he said. “We need to see a reduction of construction levels,” he said.Indeed, luxury builder Toll Brothers Inc. (TOL) indicated Tuesday that it does not plan to reduce its number of subdivisions over the next year.Mike Larson, an analyst with Jupiter, Fla., research firm Weiss Research, was most disturbed by the surge in inventory levels.“It’s truly shocking to look at the total number of properties for sale,” said Mr. Larson, noting that inventory ballooned to 7.3 months in July from 6.8 months in June. “That number alone is the worst since 1993,” he said.Mr. Larson said the total inventory is up 39.9% from a year ago, which he describes as “shocking.”“I don’t know if I’d call it a crash — but I think hard landing is a very accurate term to use here,” said Mr. Larson.

Housing Data Sign Market Heading For Hard Landing

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