Lower Prices Spurred U.S. Existing Home Sales

The level of September existing homes jumped 5.5% from August to 5.180 million, according to the National Association of Realtors. The rise followed an unrevised 2.2% August decline and beat Consensus expectations for a selling rate of 4.95M homes. Total sales include sales of condos and co-ops.

Median home prices fell 5.7% (NSA) last month for the third consecutive monthly drop. That pulled the y/y comparison to -9.0%. Prices have fallen 16.7% since their peak in April 2007.

Sales of existing single-family homes rose 6.2% after an unrevised 1.4% August decline. The y/y gains in both total sales and sales of single family homes turned positive for the first time since November 2005. Sales of existing homes, nonetheless, are down by one-third from their peak in mid-2005.

By region, home sales in the West led last month's increase with a 16.8% m/m gain. That lifted sales by more than one third versus the year ago level. Sales in the Midwest also rose but by a lesser 4.4%; the y/y change is still a negative 2.5%. In the South rose 2.2% (-7.8% y/y) but sales in the Northeast were off 1.2% (-7.7% y/y).

The number of unsold homes (condos & single-family) on the market fell 1.6% during September (-2.4% y/y) after a 5.2% August drop. At the current sales rate, the inventory fell to a 9.9 months supply versus the April peak of 11.2 months. For single-family homes, however, the inventory fell a bit more to a 9.4 months supply at the current sales rate, down from an 11.0 months supply in June.

Subprime Facts: What (We Think) We Know about the Subprime Crisis and What We Don’t from the Federal Reserve Bank of Boston is available here.

Europe’s PMIs are now weak. They are at or near the lows we have seen since the services PMI was issued in July of 1998. Both service sand MFG PMIs are below their respective neutral readings of 50 and are thus indicating CONTRACTION.

The MFG PMI is even at its lowest level since June of 1997 when its survey began.

The month to month drop in the MFG index is the largest over this period while the services drop ranks as about the 18th smallest ‘gain’ in its history of the 63 drops in the 123 observation of the series. This months’ drop also ranks 45 in size among all drops or as the eighteenth largest drop when ranked among drops (or the bottom 28 percentile). In relative magnitude this month’s service sector drop is a bottom third affair. The MFG sector is taking the relatively larger hit for this month. It is taking its largest drop on record and falling to its lowest position in its history.

Europe has been a late comer to weakness but is catching up with the US. In September the US MFG PMI stood at a level 43.5, below where Europe was then but above where Europe is now. The US ISM may yet fall to a lower level in October and be weaker than Europe. But the two indices are clearly now sharing the same dimension of weakness regardless of which is the weaker. Last month the US non-MFG PMI stood at a level of 50 above the service sector reading for EMU. EMU’s drop to 46.91 seems clearly a weaker reading than what we get out of the US Non-MFG PMI (where 44.6 is the weakest reading ever) since sharp declines have not marked its recent trend. But things are changing fast and maybe the US non-MFG sector will weaken beyond Europe’s reading. We do not yet know how rapidly the economy descended in October. But this is not a time that has rewarded optimistic projecting. Maybe the message from Europe is that we should brace ourselves for even worse news from the US.

One message from Europe is nonetheless clear. Both MFG and Services indices are quite weak and the MFG sector is falling very hard right now. Expect the more conventional readings for Europe to start to look a lot weaker. Since this report is topical and up-to-date as of October it is a month or two ahead of the release of more conventional economic reports form Europe.