The National Association of Realtors reported the lowest levels for existing U.S. home sales in 3 years. Sales of existing homes posted at a seasonally adjusted annual rate of 5,115,000 for September, down from August numbers which were also revised lower. The year-over-year decline in existing home sales of 4.1 percent puts sales levels back to where they were three years ago. Existing home inventory at 1.88 million homes was up slightly from last year’s 1.86 million units.

NAR’s chief economist, Lawrence Yun, indicated that “higher interest rates have led to a decline in sales across all regions of the country”. I would clarify that it’s higher interest rates combined with record high home prices that are causing problems for buyers. The most prevalent reason for mortgage denials is now elevated debt-to-income levels. No surprise there. What’s also not surprising is that the Federal Reserve seems to care less about what’s happening in the real economy as they continue to try to climb their way out of an enormous credibility trap of their own making. As the housing market begins to roll over, the Fed this week pushed forward with their PR campaign suggesting that further rates hikes are “appropriate”.

The DFW area witnessed the largest decline in home sales in 7 years this September. Denton County is also witnessing sales roll over as the sea of liquidity from the Federal Reserve is reigned in. What’s interesting is that you never hear about this artificial market stimulus that facilitated the Dallas-Fort Worth real estate boom, at least not from the local media or even the professional economists. Whether it’s the Fed’s own economic shills or the supposed professionals at A&M’s RECenter, there is nary a mention of the liquidity boom/bust policies the Fed continues to pursue. Apparently professional economists are devoid of memory. Willful ignorance seems to be the most valuable, sought-after quality among America’s highly educated economists.

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”  Ben Bernanke – Federal Reserve Chairman – July 2005

Next week we will get numbers for new home sales in September. Judging from the plummeting Dow Jones home construction index, those numbers will likely be disappointing as well. New home builders aren’t doing a spectacular job of bringing affordable homes to market to match buyer demand. When they do build affordable homes, some of builders are choosing to sell their new home inventory directly to Wall Street slumlords rather than wait for a bid from a cash-strapped owner-occupant buyer. But hey, higher rates should fix everything.