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Home Publications Blogs Beat the Press Economists With a Clue Were Not Surprised by the July Plunge in Home Sales

Economists With a Clue Were Not Surprised by the July Plunge in Home Sales

Wednesday, 25 August 2010 04:36

The Post told readers that the July plunge in existing home sales "was nearly twice as large as forecast." This is a case where the Post apparently relied on the views of incompetent analysts.

The 27 percent drop in sales is very much in line with what would have been expected given the sharp falloff in applications for purchase mortgages in May. The vast majority of people who buy homes need to get a mortgage. If they are not applying for mortgages, then the odds are that they are not buying a home. Given the 6-8 week lag between applying for mortgages and the closing of a home sale, it was entirely predictable that this plunge in sales would show up in the July sales data. 

The only surprising part of this picture is that professional economists somehow were surprised. Of course most of these people also missed the $8 trillion housing bubble.

Comments (8)Add Comment
August Surprises
written by david s, August 25, 2010 8:34
Karl Case was quoted in today's Boston Globe that he was "surprised and disappointed" by the July drop in home sales. Like Mr. Baker, I am surprised that of people, Mr. Case was surprised, since he and some other guy developed a very useful graph of the subject some years ago. People on the ground, i.e. real estate agents (those who are smart and lucky enough to still have jobs) were not surprised by this.
Of course,
written by James, August 25, 2010 11:18
The applications have increased recently so you are saying the sales for September and October should be higher.
It's more like 38% here
written by LJM, August 25, 2010 12:47
I live in the Kansas CIty area. Our paper today says the drop in home sales for the area is 38%. If my neighborhood is any example, that's about right for the drop in property values, too. It kills me that my insurance premium is based on rebuilding my house at a cost that's about $60,000 more than the current value of my home. That's after I argued with them and they took off about $40,000 more. They say the high cost remains, because of the cost of union labor. I hate to tell them, but the guys I used to see building all the houses around here didn't look like they belonged to a union, if you know what I mean. My tax valuation on my house is higher than what the sales price was for the house next door to me that sold last year for less than I paid for mine 8 years ago. It's a good think I like my house and I don't have a mortgage on it anymore. I just live in it.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.