Experts: July drop in home sales just the startAugust 27th, 2010 at 11:16 am by Ted Nesi under General Talk
That’s the biggest-ever monthly drop in the Realtors’ 12 years of records, and a check I did of The Warren Group’s data shows the only time there was a similar plunge in the last two decades was in the first few months of 1991, when Gov. Sundlun was shutting down credit unions amid the state’s banking crisis.
The ever-optimistic Realtors say sales should pick up soon, but so far it’s the pessimists whose predictions have come to pass. I reached out to two of them today, and their forecasts aren’t good.
Vince Valvo, group publisher at The Warren Group, told me in an e-mail Rhode Islanders should expect more of the same in the coming months:
We’ve said consistently that in the second half of the year, we’re going to see tremendous drops in sales. We were saying this even at the beginning of this year. An unemployment rate as high as we’re seeing in Rhode Island, and throughout New England, is not conducive to lots of buyers in the market. It’s one thing when we’re handing out $8,000 gifts [with the now-expired federal tax credit for homebuyers]. It’s quite another when people have to find their own money.
We’re not surprised by the drop, nor the severity. We won’t be surprised when there’s a huge drop next month, too, or the month after that. Get used to it. These sales levels are the new reality. They’re not the bottom of the market. They are the market.
Andres Carbacho-Burgos, an economist with Moody’s Economy.com whose forecasts are used by state budget officials, told me part of the reason that July’s decline was so severe was because “a lot of purchases that would have been made in the summer months of May, June and July were moved forward to April to meet the homebuyers tax credit [deadline].”
He went on to warn that in some ways Rhode Island is even more at risk than other states because of its weaker job market and particularly beleaguered consumers:
More importantly however, financial markets have dipped thanks to the European [debt] crisis and fear of a double-dip recession, reducing the value of household savings and making it more difficult to make down payments. With the value of savings falling, the job market poor, and bank credit available to only the most credit-worthy borrowers, the decline in home sales this summer is a symptom of slowing momentum, and indicates the possibility of a double-dip recession.
What applies to the U.S. applies much more so to Rhode Island of course, given an unemployment rate that’s 2.4% higher than the U.S. rate, and a lower level of average real wages, and a higher proportion of households whose credit ratings were slashed during the housing bust.
For more on all this, check out my article from last month on the risk of a double-dip in the Rhode Island housing market.