Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
U-Turn or Perfect Storm? Globalization at Crossroads - 22nd Oct 19
Stock Market Indexes Struggle and TRAN suggests a possible top - 22nd Oct 19
Fake Numbers Fueling the Wage War on Wealth - 22nd Oct 19
A Look at Peak Debt - 22nd Oct 19
The Coming Great Global Debt Reset - 22nd Oct 19
GamStop Became Mandatory - 22nd Oct 19
Learn to Spot Reliable Trading Setups: ANY Market, Any Market Time Frame - 21st Oct 19
How To Secure A Debt Consolidation Loan Even If You Have A Bad Credit Rating - 21st Oct 19
Kids Teepee Tent Fun from Amazon by Lavievert Review - 15% Discount! - 21st Oct 19
Stock Market Stalls: Caution Ahead - 21st Oct 19
Stock Market Crash Setup? - 21st Oct 19
More Stock Market Congestion (Distribution) - 21st Oct 19
Revisiting “Black Monday Stock Market Crash October 19 1987 - 21st Oct 19
Land Rover Discovery Sports Out of Warranty Top Money Saving Tips - 21st Oct 19
Investing lessons from the 1987 Stock Market Crash From Who Beat it - 20th Oct 19
Trade Wars: Facts And Fallacies - 20th Oct 19
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Falling U.S. House Prices Could Restrain Economic Recovery

Housing-Market / US Housing Apr 08, 2011 - 07:23 AM GMT

By: Money_Morning

Housing-Market

Best Financial Markets Analysis ArticleDavid Zeiler writes: With the latest data pointing to a double-dip in home prices, it has become increasingly clear that the wobbly economic recovery won't be getting any help from the housing sector.

Existing home sales in February sank 9.6% from the previous month, while prices fell 5.2% to a median of $156,000, the lowest since April 2002. Existing homes comprise 90% of the housing market.


Meanwhile, new homes sales in February plummeted to an annual rate of 250,000, far below the norm of 700,000 and a level half that of 1963, when the United States had 120 million fewer residents than its current population of 310 million. The median sales price plunged 8.9% year-over-year.

But the worst news came with last Tuesday's release of Standard and Poor's Case-Shiller Home Price Index. The index average of 20 major housing markets in the United States fell 3.1% in January, putting it within 1.1% of its April 2009 low. A drop below that level would establish a new post-peak low - the dreaded "double-dip."

"Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future," David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, wrote in the March 29 report. "At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing."

Traders took a dim view of the report last week, slamming most of the major homebuilders stocks. By Friday's close, Lennar Corporation (NYSE: LEN) was down 7.3%; KB Home (NYSE: KBH) 5.76%; Toll Brothers Inc. (NYSE: TOL) 3.52%; The Ryland Group Inc. (NYSE: RYL) 3.29%; and PulteGroup Inc. (NYSE: PHM) 2.35%.

Many analysts see home prices continuing their decline through most of 2011, making a double-dip inevitable.

"I think prices will drop another 5% to 10%," Patrick Newport, a housing market analyst for IHS Global Insight, told CNNMoney. "The double dip will hit in the next couple of months."

A Long Way Down
The housing market has struggled to right itself for many reasons. Perhaps the most prominent was the extent of the bubble; the more extreme any investment bubble, the longer and more painful the recovery.

At the peak in 2005, home prices were 65%-70% higher than what they should have been according to historic norms (see charts). The current 31% decline from the peak has not been enough to return housing to the trend lines it had hugged for decades, so it's likely prices could fall a bit more before finally reversing.

The key driver is the large number of homes on the market, which keeps pressuring prices even lower. The National Association of Realtors says February's inventory represented an 8.6-month supply based on an annual sales rate of 4.88 million units; anything above six to seven months typically pushes prices down.

But some think the situation is far direr. Private research firm CoreLogic estimates the annual sales rate at 3.6 million units, which translates to a 17-month supply.

"That implies significant downward price pressure - which we're actually observing," Mark Fleming, chief economist at CoreLogic, told MSNBC.com. Prices are falling month over month - and year over year again - at a pretty significant pace at the moment."

Some of the excess inventory is an aftereffect of the overbuilding that took place during the boom, but much of it has resulted from the endless stream of foreclosures.

Short sales and foreclosures made up 39% of February's transactions, up from 35% a year ago. The higher proportion of distressed properties, which in 2010 sold at 28% below market value on average, is yet another anchor on prices.

Moreover, CoreLogic reported that the "shadow inventory" - properties either with a loan 90 days past due or already in foreclosure but not yet on the market - numbered 1.8 million at the end of January.

And that figure doesn't include the two million homes that are more than 50% underwater, which means they are worth less than half of what is owed on the mortgage. According to CoreLogic, most of those will end up in the foreclosure pipeline as well.

"We don't even know what the inventory is," Steve Blitz, a senior economist at ITG Investment Research in New York told Reuters. "We see a visible supply but then there is a shadow supply that comes on and off the market depending on the time of the year. It's still a morbid market on a national level."

It's the Economy
Of course, lingering issues with the U.S. economy, particularly the stubbornly high unemployment rate and tighter credit, have reduced the number of eligible buyers.

"The adjustment in the housing market is going to take a long time," IHS Global Insight's Newport told the Los Angeles Times. "The numbers have been absolutely horrible, and I think a lot of this is related to the fact that we haven't done much of a job getting rid of the glut."

And the negative effects are working both ways. Just as a booming housing market feeds economic growth, the struggling housing market continues to inhibit the recovery.

Construction of one new home creates three jobs for a year and generates $90,000 in taxes, according to the National Association of Home Builders. And people who buy existing homes usually spend money on furnishings, appliances and home improvements, which benefits thousands of businesses.

The steep decline in values - homeowners have lost $8.3 trillion - has subtracted money that could have stimulated the economy.

"The housing market is still very depressed and a major drag on the economy, especially household net worth," Chris Christopher, an economist at IHS Global Insight, told Reuters.

The silver lining, if there is one, is that the housing market can't get much worse. Residential investment has dropped from 6% of the gross domestic product (GDP) in 2005 to 2.2%. Housing historically averages about 5% of the GDP.

Residential construction employment has dropped to 1.6% of all jobs from 2.5%.

The one positive report last week was the pending sales of existing homes. The National Association of Realtors reported an increase of 2.1% in Americans signing contracts to buy. Pending sales is a leading indicator, presaging the home sales data (counted when the sale closes) by about two months.

When home sales eventually do rebound, prices should follow as the market finds its equilibrium. But if the market returns to its historic patterns, home values won't reach the levels of 2005 for about 20 years.

"We may not see notable gains in existing-home sales in the near term, but they're expected to rise 5 to 10 percent this year with the economic recovery,job creationand excellent affordability," Lawrence Yun, the NAR's chief economist, said in a statement.

Source : http://moneymorning.com/2011/04/08/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules