While economists and analysts are aggressively debating whether our nation’s overall economy is poised for a double dip, one firm is not bashful in highlighting that our housing market specifically is beginning to slide down the slippery slope of a double dip. Thanks to our friends at 12th Street Capital for bringing this report to our attention.
Housing Wire, a leading financial website providing news on the mortgage market, highlights the following report, Economist Reports the Housing Market Double Dip Is Beginning,
Toronto-based Capital Economics, an independent macroeconomic research firm, said Tuesday that a double dip in the United States housing market is now materializing.
Furthermore, the report finds that for every home currently on the market, there are two homes waiting to be sold.
There are conflicting opinions on whether or not a double dip will occur, and warnings abound, but the research by Paul Dales clearly calls the beginning of a new downturn. However, the Federal Reserve Bank of Cleveland is also reporting numbers that indicate the macroeconomy still shows pockets of strength.
In the Capital Economics report, titled “Double Dip Begins,” Dales argues that the rush to take advantage of the tax credit pushed new home sales up by 29% in the two months to April. But in May, new sales plunged by 33% m/m to a new record low. The pending home sales index also fell sharply, by 30% m/m in June.
“The expiration of the homebuyer tax credit at the end of April has triggered a double-dip in the housing market, with new home sales falling particularly sharply in May,” he writes. “The only reason why existing home sales did not fall significantly is because they are measured at the contract closing, rather than signing stage.”
New legislation signed into law at the start of July dictates that as long as a contract was signed before the end of April, homebuyers can still claim the tax credit if it is closed before the end of September. Existing sales will therefore fall more gradually.
Nonetheless, the number of homes in the foreclosure pipeline increased in the first quarter. The foreclosure inventory rate rose from 4.5% to 4.6% and the delinquency rate, which measures the proportion of all borrowers that have missed at least one mortgage payment, increased from 9.5% to 10.1%.
“That means the potential supply, or “shadow inventory”, rose from 7.6m homes to 7.8m,” Dales said. “That dwarfs the 3.9m homes already on the market.”
The pressure from this overhang can be alleviated in terms of lower prices and/or longer time to sell properties. Either way the impact is slower economic growth, lessened consumer confidence, and ultimately lessened consumer spending.