US house sales fell 26% in October to 20-year low, time to buy?

Completely overwhelmed yesterday by the news from Ireland and Korea, the fundamentals of the US housing market continued to deteriorate with a 26 per cent slump in year-on October sales for existing homes, with many markets reporting a 20 year low for sales.

Americans simply are not buying houses, despite super-low mortgage rates. But then they are right to fear that even current prices will fall once mortgage rates go up, as they must in the long-run.

California blues

Sales plunged 41 per cent in Minneapolis, 28 per cent in Massachusetts and 34 per cent in Illinois. In California, it was the second-worst October since the early 90s but then the state is almost bankrupt and struggling with bond sales.

One problem is that government tax credits are now history. Another is that the mounting crisis surrounding mortgage foreclosures means that less properties are coming onto the market for sale.

Some 4.43 million homes were sold on a seasonally adjusted annual basis in October, compared with nearly 6 million in October 2009, rather less than the five million sold at the height of the financial crisis two years ago.

Bottoming out?

That said the US housing market could well be approaching a bottom. Banks are turning to short-sales rather than foreclosures in which they accept a reduced loan repayment once the owners sell their property. This factor and the reduction in the number of properties now for sale may steady the market, although nobody expects a quick rebound.

Gulf investors taking the plunge in the US today will likely find a relative bargain that will rise in value substantially over the next decade. For when markets look most hopeless the best bargains are to be found, even if you have to sit out a rough period first.

ArabianMoney thinks a fall in US stocks very soon will encourage a rotation back into real estate at depressed price levels but this is not an investment for the faint hearted.