The existing home sales were down but not as much as expected while consumer confidence was down much more than expected. The first item, other than the fact that the sales were not down as much as expected, means the Fed is still going to have to do something about it. What could the Fed do, you might ask? No, you wouldn't, you already know they can lower interest rates which everyone knows can fix all ills.
The second item is a little more subjective. It seems that the last day for contributions to this number was the day of the Fed's latest interest rate cut. This tells the market the party can continue because had consumers known about the rate cut they would have better confidence. This is an easy game to play.
The bombshell news from Lennar homes should cause many to shudder but the stock market manages to turn its ears and eyes away from any fundamental news in order to bid up tech, that would be AAPL today. We mentioned the Target and Lowe's news in our last post and they both had tough days on Tuesday.
Lennar, second largest home builder by market value??? which only went down 4% today, announced that its revenues had dropped 44% and earnings were not there as they reported a $3.25 loss after major writedowns, an amount six times what Wall Street expected according to an article in the WSJ for Wednesday. [The article is front page entitled "Housing Chill Grows Worse, Bites Consumers".] They announced that they have laid off 35% of their workforce due to the housing downturn. These cuts are not contractors but support staff.
The news on housing continues to come in worse than expected and we are not surprised. The stock market doesn't think there is anything to worry about because the Fed is there. The housing slump is being compared to the situation back in 1991 but the inventory is much higher in today's market than back then.
We are including a link to a good article from CNN Money today making comments about the housing environment.
We quote the article here for highlights:
With inventory at an all-time high, the 10-month supply of homes has not been topped since May 1989, according to Mike Larson, a real estate analyst with Weiss Research.
"The supply of homes goes up and up every month," said Larson, who blamed much of the rise on listings put up by investors trying to get out from under unprofitable homes they bought during the boom.
"Sellers are still not being realistic about selling prices. They have a false sense of the worth of their homes," he said. Owners who do not need to sell quickly are holding out for their asking prices.
That explains the contradictory trend of fairly stable prices but sharply lower sales numbers. The slight August rise in the national median price "is not reflective of what has to happen to clear the books of inventory," said Larson.
These comments are straight from the NAR (National Association of Realtors), an organization that is usually fairly upbeat.
Our favorite quote from Larson is:
"We'll find out next month if the Fed cut will turn the market around."
Yes, he'll know next month. We don't think so.