Wednesday, September 26, 2007

A Summary of the Recent News on the Housing Market

The excerpts below from an article in the WSJ shows that in the housing market the beat goes on.

Most forecasts don’t see the market turning around until 2009 or 2010, mostly that is about as far out as they can see with any level of confidence. If you look at previous downturns (bursting bubbles) in previous housing markets, commodity markets , even stock markets history demonstrates that the return to the peak prices seen in 2005 or 2006 could take 8 to 10 years. The housing decline of the early 1990s took just over 8 years for the prices to go from peak in 1989 back to that peak price in the late 1990s. This process takes so long because first the selling public and homebuilders must come to the realization that the market is severely depressed. Second, prices must drop to work-off the excess inventory (currently a problem with existing home sellers), and third consumers need to return to the market to buy (also a problem now because many consumers understand that the bottom as not been reached). It appears that we are still in the middle of this process and make no mistake this is a process that is not only financial, but psychological as well.

If you disagree with this thinking look at the NASDAQ in 2000 (March 10, 2000 a daily high close of 5048 was reached) and looked at it today. Since March 2000 to yesterday’s close the NASDAQ is still down over 46%.

(Double click on graph to enlarge)

The housing market is going into a deeper chill, and consumers are starting to shiver. Sales of existing homes in August fell sharply, and home inventories by one measure soared to an 18-year high, according to data released yesterday. . . . . The housing market is worrying consumers, raising fresh concerns about economic growth. Consumer confidence fell this month to its lowest level in almost two years, a new survey showed. . . . . . "The combination of all this is indicative of an economy that has lost quite a bit of momentum," said Joshua Shapiro, chief U.S. economist at the consulting firm MFR Inc., an economic forecasting firm that advises investors.

. . . . Overall, sales of existing homes tumbled 4.3% in August to an annual pace of 5.5 million, the slowest in five years, the National Association of Realtors said yesterday. More worrisome: The number of homes for sale is enough to satisfy 10 months of demand at the current pace. Two years ago the figure was below five months. Analysts cite excess supply in forecasting that an upturn in sales and prices may not come until 2009.

Home prices in July fell 3.9% from a year earlier, according to the S&P/Case-Shiller home-price index. The index, which tracks prices in 20 U.S. metropolitan areas, hadn't measured that big of a decline since just after the 1990-91 recession.

The bottom is "not yet in sight" for housing, said Mr. Shapiro, the economist. He said the growing number of unsold homes "argues for accelerating declines of prices."

The Conference Board said yesterday that its index of consumer confidence dropped to 99.8 in September from 105.6 in August, putting it at the lowest point since November 2005. The survey ended on Sept. 18, the day the Fed lowered interest rates by half a percentage point. The share of consumers reporting jobs as "hard to get" rose to 22.1% from 19.7%.

Individual home owners have been slower than builders to bring down their prices to match demand, but that may be changing as the housing slump worsens. (my emphasis)

The National Association of Realtors reported yesterday that the median national home price was $224,500 in August, up 0.2% from $224,000 in August 2006. Those numbers can be skewed by the mix of homes sold in a particular month. Economists say the Case-Shiller index is less vulnerable to that distortion because it tracks the sales of individual homes over time.

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