U.S. Existing Home Sales Drop Severely as Recovery Loses Pace

The termination of the tax credit program for first time house buyers continues to show more signs that the recovery witnessed in the housing market over the past year was solely due to the government’s program, where existing home sales declined heavily in July, as overall economic activity continues to wane.

The existing home sales index declined severely in the month of July by 27.2% to an annual rate of 3.83 million units, compared with the prior revised estimate of 5.26 million, which marked a 7.1% drop from May, where this clearly indicates that the housing market is suffering from deep weakness as elevated unemployment, tightened credit conditions, and record foreclosures continue to suppress activities.

The devastating report indeed sheds more light over the progress of the recovery, where we saw over the past few months a general deterioration in economic activities in several sectors including the housing, the manufacturing, and the services sectors, where it seems that without governmental support, the economy won’t be able to survive the aftermath of the worst recession since WWII.

The tax credit program for first time house buyers ended in April, and ever since then; activities in the housing market has been deteriorating, where sales of previously owned homes peaked in April to reach 5.79 million units, but continued to decline ever since in a clear sign that the deterioration is largely tied with the termination of the government’s program.

Some analysts now fear that the U.S. economy will suffer a double dip recession, since elevated unemployment in addition to tightened credit conditions continue to suppress overall economic activities, noting that unemployment continues to hover near its highest levels in almost 26 years at 9.5%.

Nevertheless, we don’t expect the economy fall into another recession, since improvement has been going over the past period, though the pace of recovery is still very slow, however, it is still progressing and that could prove to be vital for the economy, as once the recovery reaches a dead end, that’s when we need to worry, but we still believe that the economy will continue to recover throughout this year and well into next year as well.

Investors received the news with huge pessimism that drove them away from the U.S. dollar, where the U.S. dollar weakened against its major counterparts, where the Euro rose against the Dollar to trade around today’s highs at .2697, while the Pound also rise against the Dollar to trade around .5457, and the Yen also strengthened against the Dollar, where the pair is trading around 83.77.

Moreover, stock indices dropped heavily in today’s early session, where the Dow Jones Industrial Average index lost more than 100 points so far to trade near the 10037 levels, while the S&P 500 index dropped by nearly 1.50% to trade near the 1052 levels, data as of 10:16.