U.S. Housing Market Recovery Process Outlook
Housing-Market / US Housing Jul 03, 2009 - 09:14 AM
Mike Larson writes: Every few months, I feel it’s my duty to let you know the latest about what’s going on in housing. There is simply so much off-the-wall blather, bogus data, and downright misinformation out there that if I don’t cut through it, I don’t know who the heck will!
In a nutshell, we’ve gone from housing Armageddon to a market marked by some stability. Not a big improvement. Not a huge recovery. Just some stability. But if I’m right about the future, it’s going to be a LONG time until we see a real rebound in housing prices … thanks to several forces that will temper the magnitude of any recovery.
So where do we stand right now?
New Homes: Much Less Supply, But Demand Still Ice-Cold
Here’s the latest data from May …
New home sales dipped 0.6 percent to a seasonally adjusted annual rate of 342,000 from 344,000 in April. The numbers were a disappointment, considering that economists were expecting sales of 360,000. Results for the past few months were also downwardly revised by 32,000 units.
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| Overall, new home sales in May were a disappointment. |
Regionally, sales jumped 28.6 percent in the Northeast and 18.6 percent in the Midwest. They inched up 1.3 percent in the West, but fell 8.5 percent in the South, which is the nation’s largest new home market (184,000 units sold at a seasonally adjusted annual rate vs. 80,000 in the West … 51,000 in the Midwest … and 27,000 in the Northeast)
The raw number of homes for sale continued to decline, falling to 292,000 from 299,000 in April. That’s the lowest reading going back to March 2001. The “months’ supply at current sales pace” indicator of inventory dipped to 10.2 from 10.4.
The median price of a new home rose 4.2 percent last month to $221,600 from $212,600 in April. But on a year-over-year basis, prices were down 3.4 percent.
How do I interpret the numbers?
Yes, sales rose in three out of four regions of the country. But they declined sharply in the South, the country’s biggest new home market. So I’d say that overall, sales were a disappointment. At the same time, for-sale inventory continues to decline — a definite plus. And the year-over-year rate of home price depreciation eased.
The story in new homes remains similar to what we’ve had the past few months: Conditions are gradually stabilizing, yet showing no sign whatsoever of a vigorous rebound. And the supply of new homes for sale is back in line with the long-term historical average.
Going forward, the biggest issues remain unemployment and interest rates. Because if potential buyers are losing their jobs, and financing costs are going up, builders are going to have a tough time moving product.
Existing Homes: Foreclosures Keeping Supply Elevated, Mortgage Rates Remain a Real Threat
Existing homes make up the lion’s share of any given month’s sales, and that’s the market in which many of us transact. So what’s going on there is incredibly important to you, me, and all of your neighbors.
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| The median price of an existing home rose to $173,000 from $166,600 in April. |
In May …
Existing home sales gained 2.4 percent to a seasonally adjusted annual rate of 4.77 million units from April. That was slightly below economists’ forecasts for a reading of 4.82 million and down 3.6 percent from the same month a year earlier.
Single-family sales climbed 1.9 percent, while condo and cooperative sales rose 6.1 percent. Regionally, sales were mixed. They rose 3.9 percent in the Northeast and 9 percent in the Midwest. But transaction volume was unchanged in the South and down 0.9 percent in the West.
The raw number of homes for sale fell 3.5 percent to 3.798 million units from April. That was also down 15.3 percent from a year earlier. The “months’ supply at current sales pace” indicator of inventory dropped to 9.6 from 10.1, with single family inventory falling to 9 from 9.5 and condo inventory slipping to 15 from 15.4.
The median price of an existing home rose 3.8 percent to $173,000 from $166,600 in April. But prices were still down 16.8 percent from $207,900 in the year-ago period.
Here’s my interpretation of the figures: We saw another month of modest improvement in the existing home sector in May. Sales rose, led by the Midwest region. And the supply of homes on the market dipped, although we’re still probably oversupplied to the tune of about 1 million units.
However, the real threat going forward is foreclosure inventory …
You see, many of the loan modification programs out there are failing to curb the influx of new distressed inventory. The reason: They’re designed to combat foreclosures caused by the structure of the mortgages in question, NOT broader economic trends such as rising unemployment and falling home prices.
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| Rising unemployment and falling home prices could push foreclosure inventory higher. |
Another thing to keep an eye on: Mortgage rates. They didn’t begin to rise significantly until late May. So the figures I recapped above wouldn’t have captured the impact of those higher financing costs. If long-term rates continue to rise … and I believe they will … we’ll see downward pressure on housing demand.
What else is brewing in the existing home market? Well, the biggest fly in the ointment continues to be pricing. It remains weak, with yet another double-digit decline from year-earlier levels showing up in the May data.
The Bottom Line?
It’s clear that the housing sector is no longer in freefall. But neither is it rebounding strongly. We’re seeing modest declines in inventory, modest improvement in sales, and some tentative signs of stabilization in pricing in some areas.
And that should come as no surprise. We just experienced the longest, largest housing bubble in U.S. history. As a result, the recovery process will be a long, drawn-out affair.
Until next time,
Mike
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