Will Housing Repeat Oh-eight?October 22, 2012 Posted by: Joe Morgan, CFA
It's high time
To draw the line
Put an end to this game
Before it's too late
Some recent housing market indicators seem to point to stability,while others are still pointing downward. Specifically, existinghome sales rose 5.1 percent from their trough last month of 4.4million per annum, while home prices have recently fallen 9 percentin the past four months.
Existing home sales are an important indicator of stability becausethe turnover of existing homes often leads to other purchases ofbig ticket items such as washing machines and refrigerators.Although the importance of home prices is self-evident, it isdifficult to have much faith in any home price indicator given theinfrequency of turnover.
So what is the story with housing?
Diving into the numbers we find the downturn in 2008 was probablynot as bad as it seemed at the time. Existing home sales ran arounda steady 5 million annual pace, which is exactly where housingbottomed in the 2000/2001 downturn. The difference being, ofcourse, that the mortgage market was functioning well in the priorperiod - even going strong, you might say, with most indicatorspointing toward rising home prices.
So, if we are currently running at the pace of the prior downturn(even though today's is a "housing-led" recession) shouldn't we behappy with the housing market's performance thus far? I for onehave been pleasantly surprised.
Unfortunately, a deeper downturn looms in 2009.
Last week's report of 663,000 net job losses in March brings thetotal to date to 5.1 million. The rate of job losses began toincrease only last September. In prior months, job losses had onlyaveraged just 137,000 since the downward trend began in January2008.
In other words, the foreclosures we saw in 2008 were primarily aresult of shifty mortgages and not a result of lostincome. Most of the above-mentioned job losses occurred veryrecently and have not had the chance to filter into the housingsector, much less the remainder of the economy.
The recent Homeowner Stability Initiative housing bailout programintroduced...Read More