Home sales increased 3.0% in July but the inventory of unsold homes also increased 3.0% last month. Ominously, an unusually large share of these homes are vacant, damaged or in neighborhoods where multiple foreclosures have cut home values sharply. To the extent that these homes are not sellable to buyers with prime credit, the home inventory is overstated.

Home sales have averaged at about the December 2007 level through the first seven months of the year but the number of homes for sale has risen 14%, about 618,000 homes. Homebuilders get an “A” grade this semester for handling the crisis by cutting starts below sales and reducing the inventory of new homes for sale by 78,000 or 16% so far this year.  But the inventory of unsold existing homes has soared almost 700,000 or 17% since December, including a 174,000 jump in July.

Downstream from the job site the housing recession will continue in real estate and mortgage markets until rising sales can make a substantial cut in the surplus home inventory.  We had expected some signs of that by now but clearly it is still at least several months ahead. But it is almost in sight with existing home sales now rising, home price declines slowing and the imminent October 1st impact of legislation that will permit as many as several hundred thousand financially stressed homeowners to avoid foreclosure by switching to an FHA mortgage on a written down principal balance.

The best news for the housing market this week was the rise in the Conference Board Consumer Confidence Index from 51.9 to 56.9.  This was a direct consequence of the $0.40 plus drop in the price of gasoline. Note that gas prices have not fallen further since the survey was done several weeks ago and there has been no decline in oil prices that suggest another gasoline price drop is immediately ahead.

The survey found a marginal deterioration in the assessment of current economic conditions but a marked improvement in expectations for future economic conditions.  This is the first step to bringing cautious households back to the model homes and brokers’ offices.

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11/10 - Short Term Credit Being Fixed; Long Term Credit Still a Problem

11/07 - Contractors drop 99,000 jobs in October jobs report

11/06 - Plunging tax receipts threaten public construction funding

11/03 - Obamanomics

10/30 - Recession will cut construction demand relatively modestly

10/28 - Financial fix still working

10/21 - Credit fix beginning to restore loan access to borrowers

10/13 - How did $600-800 billion of US mortgage defaults cause a worldwide economic crisis?

10/09 - Credit crunch damage to nonresidential construction still uncertain

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