The Existing Home Sales Data Bomb

As everyone knows by now, existing home sales for July plunged a record 27% from July and were 25% below July 2009.  This was a record sales drop, as sales of single-family homes fell to a 15-year low.  The Einsteins on Wall Street were expecting a 13% decline, demonstrating once again the uselessness of Wall Street research. Here's the news link:  NAR press release

The National Association of Realtors and CNBC and other mass media of course are finding a silver lining in the fact that the median price was up .7% (that's "point seven percent") from 2009 to 2010.  I would suggest that the home-buyer tax credit was responsible for temporarily stabilizing prices and that the data massaging, otherwise known as "seasonal adjustments," likely produced arithmetic which gives the illusion of slightly higher prices.  At the end of the day because of all of the data manipulation it can argued that a .7% change in the data from July 2009 to July 2010 is not statistically significant/meaningful.  Moreover, the measured inventory (vs. the shadow inventory we all know is out there) increased, suggesting that supply and the lack of tax incentives will negatively influence prices going forward.

Ironically, July is supposed to be one of the peak selling months for homes.  If that's the case, the housing market for the rest of 2010 is doomed.  The Government and the Federal Reserve market interventions have served no purpose other than to keep a market artificially and temporarily propped up, which will ultimately lead to further damage going forward.  The country can not afford to continue tax-subsidizing home buyers at the expense of everyone else and the Fed is largely out of interest rate bullets.  Essentially, all the Government tax subsidy did was keep housing prices artificially high, thereby transferring a massive amount of wealth to the sellers, real estate brokers and mortgage banks at the expense of the moronic buyers and the rest of us.

At some point the bond market will start regressing back up to some mean level of interest rates - i.e. interest rates will head higher - and then we will see a serious wipeout in housing values.  I am not going to put a timeframe on when this will occur, I just know that it will occur and it will start happening when it is least expected.  Of course, judging by the record amount of investor cash flowing into bond funds - see this Bloomberg article:  The bond bubble - it appears as if investors are currently least expecting the bond market to tank. Perhaps the current timeline of the bond market may be analogous to that of the internet stock bubble in 1999.  And we all know what happened in the spring of 2000...