Home sales disappointed in November, according to fresh reports on new and existing sales Tuesday (December 23). The disappointing news on the home front caused some analysts to speculate that the fourth quarter gross domestic product could be far worse than the .5 per cent drop reported by the government Tuesday.

The .5 per cent drop in the GDP reported by the Commerce Department was in line with analyst expectations. This initially excited concerned investors. However, the bad news in housing and other negative economic indicators prompted many to warn of far worse conditions in the current fourth quarter. Even President Bush noted that the country should be prepared for some bad news when fourth quarter data comes out. Some analysts have suggested a 6 per cent drop in GDP is possible for the fourth quarter. This would be the worst drop since 1982.

New home sales fell by 2.9 per cent in November to an annual sales rate of 407,000, according to the Commerce Department. This is the sharpest fall in 18 years for new home sales.

Existing home sales data was even worse. The National Association of Realtors reported that November sales of existing homes fell 8.6 per cent to an annual rate of 4.49 million units. The combination of poor new home sales and sales of previously owned homes means that the housing market still has much work to do before making a come back. The housing market struggles is a good indicator of current economic conditions.

Home prices continue to show that a strong buyer’s market exists. Median home prices for existing homes fell by 13. 2 per cent in November to a price of $181,300, the largest year-over-year drop since 1968. New home sales median prices dropped by 12.7 per cent to $220,400.

Economic markets and consumer confidence are being strongly impacted in the current economic climate based on the expectations for a quick turnaround. Today’s broad data suggest a deepening recession, which could certainly spell trouble for financial markets, jobs, and other areas of economic importance. Economists are already saying the recession is the worst in 25 years and the most pessimistic forecasts note that the US could be headed for its worst stretch of economic turmoil since the Great Depression.

Surprisingly, the consumer confidence index climbed from a reading of 55 in October to a 61 reading in November. The report was astonishing given the general marketplace feel of concern and panic, along with ongoing burdens indicated by jobless claims reports. Strong drops in fuel prices and other consumer prices likely helped give budget-conscious consumers more confidence. Many retailers have been going all out with deals and special promotions to get shoppers into their stores.

Oil dipped to $38 per barrel on Tuesday and the OPEC production cuts announced last week seem to have had little impact on speculators. Many analysts believe oil could be headed for $25 per barrel before it reaches a bottom. Low fuel prices have been welcomed by holiday travelers. Many markets are seeing prices below $1.50 per gallon.

Market Recap

The Dow fell 60 points on Monday and another 100 points on Tuesday to kick off the holiday-shortened trading week on Wall Street. New and existing home sales data disappointed once again. Oil dropped to $38 per barrel Tuesday. The GDP shrank by .5 per cent in the third quarter. Consumer confidence index unexpectedly climbed to 61 in November, up from 55 in October. Wall Street trading is closed Thursday for the Christmas Day holiday.

Neil Kokemuller
Tuesday, December 23, 2008
11:50 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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