Existing Home Sales Fell 5.3% in January to the Lowest Level in 12 Years

Weaker than expected existing home sales numbers bring us back 12 years, coincidently to the same year that the major indexes last traded at their current levels.  Housing numbers will not improve until prices fall to levels supported by income and rental ratios.  If we only go back to the year 2000, the year when the housing bubble started to rapidly inflate, the ratio of house prices to rents was approximately 100, it now stands at approximately 122.  From this perspective, either rents go up by 22% or home prices come down 18%.  The ratio of median home prices to median family incomes stands today at approximately 3.2 and was approximately 2.8 in 2000.  So either incomes rise by 14% or prices fall by 12.5%.  With rising unemployment, incomes are unlikely to rise any time soon.  And, with rising foreclosures and a glut of rental homes available, many of these homes are owned by people who anticipated flipping them but couldn't and are trying to rent them before foreclosure consumes them, homes sales are not likely to improve and rents won't rise with so much competition.  Assuming the two ratios meet in the middle, housing prices could reasonably fall another 15.25%.  But that's only to 2000 levels. 1997 is a better harbinger because that was when home prices first began to rise following the S&L crisis.  That would make my back-of-a-napkin calculation of 15.25% optimistic.

As a follow up to my post "Ridiculous" yesterday, I repeat, RIDICULOUS!  It is 10:20 as I write and the S&P is down 2.10%.  Ridiculous.  Or maybe just scary.