Just when you thought the real estate market was showing signs of a recovery, reality rears its ugly head.
According to the National Association of Realtors (NAR), existing home sales plunged in December, falling nearly 17 percent in their largest month-over-month drop since record-keeping began. Meanwhile, December's inventory jumped to a 7.2-month supply of unsold homes, notably higher than the 6.5-month supply recorded in November.
What's more, according to the latest figures from the Case-Shiller Home Price Index, prices have started to slip again...pointing to a double dip in home prices.
From Reuters by Lynn Adler entitled: Home prices suggest tenuous housing rebound
"Home prices slipped in November and were softer than expected in the latest sign that a rebound in the U.S. housing market is still tenuous, according to Standard & Poor's/Case-Shiller indexes on Tuesday.
The S&P composite index of home prices in 20 metropolitan areas slipped 0.2 percent in November after a revised 0.1 percent October dip, for a 5.3 percent annual drop.
A Reuters survey had forecast a 0.1 percent November rise. Prices were originally reported as unchanged in October.
"Up until a while ago it looked like home prices might have bottomed," said Suvrat Prakash, U.S. interest rate strategist at BNP Paribas. "There might be a double dip in home prices, which could feed through to the rest of the economy," he said, adding that housing still faces many hurdles.
Several major government supports for housing are soon ending, including an extended and expanded home buyer tax credit for which buyers must sign contracts by April 30.
The end of such incentives just as mortgage rates rise and foreclosed properties start hitting the market could pressure prices anew, economists agree."
That being said, the real test for housing looms large this spring when the Fed exits its program to buy mortgage backed securities (MBS).
Since the inception of the program in January 2009, the Fed has spent $1.148 trillion in the agency MBS market, or 92 percent of the allocated $1.25 trillion, which is scheduled to run out in March 2010. When that well runs dry, higher interest rates are practically a given which will send prices even lower.
Needless to say, the headwinds are gathering....
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