Big worries about real estate

A 27.2 percent plunge in home sales last month is reason enough to worry, but it's the jump in inventories that's an even bigger problem. Supply in July stood at 12.5 months, up from 8.9 months in June. A normal market has six months of supply - meaning that, all things being equal, it would take that much time to exhaust the amount of homes for sale. A 12.5-month inventory suggests there are very few buyers out there - and that means prices in some areas are surely headed downward. A big sales drop had been expected because of the expiration of federal tax credits on new home purchases, though most economists were not expecting the percentage to be so large. "Truly gut-wrenching," economist Jennifer Lee told the NYT. As I've pointed out over the months, it's hard to generalize about the housing market, especially on a national basis. But when sales slump so badly, and when inventories rise so sharply, you can be sure that the entire market is wobbling. Among the economists weighing in (via Real Time Economics):

"Homeowners are clearly under financial stress, need to sell, and can't." -Steve Blitz, Majestic Research

"The most worrying feature of the recent housing data is the absence of evidence of any underlying improvement in sales. All of the action earlier this year appears to have been driven by the tax credit." -Nigel Gault, IHS Global Insight

"Unless households and businesses have confidence about the future, they are not going to buy homes or invest regardless of the interest rate." -Joel Naroff, Naroff Economic Advisors