Tuesday, March 25, 2008

Glimmer of Hope?


Yesterday the National Association of Realtors reported (http://www.realtor.org/press_room/news_releases/2008/existing_home_sales_rise_in_february.html) February existing-home sales were 2.9% higher than January’s, although 23.8% below a year ago. Prices were 8.9% lower than last year.

Some analysts were encouraged by these data and expressed the view that falling prices may, at last, have attracted buyers into the market. Perhaps the long slump may be coming to an end.

According to Lawrence Yun, the Realtor’s chief economist:

“We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing. Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”

Today Standard & Poor’s released (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_032544.pdf) January data for its S&P/Case-Shiller Home Price Indices. The report said:

“The 10-City Composite set yet another new record, with an annual decline of 11.4%. The 20-City Composite recorded an annual decline of 10.7%.

“’Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,’ says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. ‘Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.’”

Clearly, the optimism is not universal.

Who’s right?

We’ll see. Just remember we’re in a bear market for real estate. And, just as in the stock market, there can be bear traps that fool premature optimists with temporary price increases. This is a severe price deflation that will be compounded by recession when that development is at last acknowledged by the powers that be.

Stay tuned.

© 2008 Michael B. Lehmann

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