By Jason Simpkins
Associate Editor
The National Association of Realtors' index of pending home sales dropped 2.6% in the month of November, an indication that the housing recession is still a long way from turning a corner.
After posting a 3.7% gain for the month of October, the index has tumbled to 87.6. Compared to the same period last year, the index is down 19%.
"There is no evidence [the housing recession] is bottoming." U.S. Treasury Secretary Henry Paulson said on CNBC television. "The evidence would be that it has further to run."
Home values have plummeted while inventories of unsold homes have swelled. New home prices have dropped the most since 1970 and foreclosure filings have nearly doubled from a year ago. Approximately one-third of all home sales were canceled or delayed throughout the months of September, October and November.
"Inventories are still high and home prices have further to fall in order to lift affordability," Justin Smirk senior analyst at Westpac Banking Corp. told Bloomberg News. "There's more bad news to come in housing before it gets better."
There was a 10.3-month supply of previously owned homes on the market in November, at the current sales price. In 2006, the average supply was 6.5 months. And in 2005, inventories were as low as 4.5 months.
"It will take most of the year to work out of the housing slowdown. Currently, the inventory of unsold homes is at an eight-to nine-month level. We have to get this down to a more normal level of four to five months. In order to get to this level, housing starts will remain low," Dr. Robert Sweet, an economist at MTB Investment Advisors, the investment-advisory subsidiary of M&T Bank Corp. (MTB), said in an interview with Money Morning.
In his interview with CNBC, Paulson said the government might intercede, and would consider alterations to the plan brokered by mortgage lenders and the Bush administration last month.
"One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers," Paulson said.
Lawrence Yun, chief economist for the National Association of Realtors, provided a dissenting voice, saying he expects home sales to hold steady in coming months.
"Although there could be some minor slippage in the first quarter, existing home sales should hold in a narrow range before trending up," Yun said in a statement. "The exact timing and strength of a home-sales recovery is a bit uncertain."
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