Economists’ Reactions to Housing Numbers

From the Wall Street Journal’s Real Time Economics blog, here are some selected comments from economists regarding today’s housing news. With some caveats, this group seems to view the report or more appropriately the reports of the past few months in a fairly positive light. I’m not convinced, but maybe I am just gun shy at this point in time.

• Housing may no longer be the weakest link… Demand has clawed itself back to where it was a year ago, a very nice signal that the market has not only hit bottom but is making its way back. Importantly, demand rose in every region of the country. In the West, which is the poster child for problems, sales were well above what they were a year ago. Yes, many of those purchases were for foreclosed homes, but a sale is a sale. While demand was stronger for condos and coops than signal-family structures, we shouldn’t take much from that. The condo market is more volatile. Meanwhile, sales of single-family homes were actually higher in June than they were in June 2008. The inventory of homes for sales fell a little but is still too high and median prices are down by over 15% for the year. –Naroff Economic Advisors

• Existing home sales are up in four of the last five months and have climbed by 9% since bottoming out in January. While this is encouraging, there are still two trouble spots. First, the NAR indicated that 31% of all resales in June were distressed properties. That percentage is down from around 50% seen a few months ago, but with one out of every three homes sold being either a foreclosure or a short sale, downward pressure on prices is likely to continue. Second, the disastrous labor market may weigh on potential homebuyers in the coming months, especially with the unemployment rate expected to continue to rise through year-end –Omair Sharif, RBS

• This is a very good report, as it suggests that the recent momentum in U.S. housing activity may be gathering some traction as U.S. homebuyers take advantage of the very favorable mortgage rates and home prices. Additionally, the numerous incentives contained in the fiscal stimulus package may have also been a very influential factor in the resurgence in sales. In the grand scheme of things though, while we are encouraged by the recent flow of favorable housing sector reports, the considerable headwinds that U.S. households continue to face will likely limit the pace of recovery in the sector. –Millan L. B. Mulraine, TD Securities

• The bottom line here is that single-family existing sales have risen modestly for three straight months, and that hasn’t happened since late 2004. The level of activity remains hugely depressed and, so far, all that’s happening is a reversal of the post-Lehman drop. The acid test is whether sales can push on beyond the pre-Lehman trend of just under 5 million over the next few months. –Ian Shepherdson, High Frequency Economics

• While demand for properties at the bottom of the market from first-time buyers is coinciding with supply of heavily-discounted distressed properties (mainly from the sub-prime strata), troubles are lurking further up the food chain. A high and rising unemployment rate is creating problems for many formerly creditworthy homeowners, as will the impending bulge in resets of Prime ARMs and Option ARMS. We look for price pressures to intensify in the middle to upper end of the housing market as these factors begin to prompt increased distressed sales at those price points. Therefore, while much of the impact of the sub-prime disaster on prices at the bottom end of the market may well be behind us, there will be plenty of more pain for higher priced properties. –Joshua Shapiro, MFR Inc.

• Existing home sales are recorded at the end of the escrow period and therefore lag developments in the new homes market by one to two months. As such, existing home sales in October 2008 reflected buying conditions in August and September 2008, before the Lehman bankruptcy caused a re-intensification of the credit crisis. Therefore, the recent improvement in existing sales provides further evidence that housing demand conditions have stabilized and that the economy is headed for a rebound.–Anna Piretti, BNP Paribas

• Single-family starts have risen For a second straight month, multi-family units sold at a faster rate than single-family homes but both continue and encouraging upward trend… The stronger sales of multi-family homes helped trim the inventory of unsold condos and coops but the stocks remain too high to provide much incentive for builders to kick up production schedules. The inventory of unsold homes remained elevated at 3.2 million units but the stronger sales rate cut the months’ supply of homes (inventory divided by sales) to 8.9, the lowest this year… Overall, this represents yet another encouraging sign that the housing market is beginning to stabilize. –Nomura Global Economics

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