The Housing Market: Back to Square One?

You may have heard that the housing-sales figures released yesterday showed the biggest drop in existing-home sales in 40 years. It's actually a little worse than that: The National Association of Realtors reported that seasonally adjusted existing-home sales showed their largest monthly drop since they began keeping such records in 1968. So it's impossible to know for sure, but this could have been the biggest one-month drop ever.

But let's get a little perspective: The reason existing-home sales fell so much is that they had been artificially pumped up by the $8,000 first-time homebuyers tax credit. That was originally scheduled to expire in November, although it's been extended, so much of the homebuying public rushed to get their purchases done before then. And even that precipitous drop only took the existing-home market back to where it had been in August. In other words, it's not December that was the outlier, but the fall months that preceded it.

Indeed, for the entirety of 2009, sales of occupied U.S. homes rose for the first time in four years. The cost of that was that prices fell by more than 12 per cent last year, the most they've fallen in a single year since the 1930s. Those annual figures bear much more significance than the monthly changes.