 |
|
 |
(The Economy) and Housing are Bottoming
By: Dr. Charles Lieberman
Date: 6/22/2009
Evidence continues to mount that the U.S. housing market is very close to bottom. Existing and new home sales have fluctuated in a narrow range for several months, even as new construction continued to sink at a rapid pace. But recent housing starts data suggest that new construction has also stabilized. Moreover, stories in the media report that competing bidders are trying to purchase homes in multiple areas, while housing prices have increased in several regions within California. This last development is surprising and significant, because California was one of the most overbuilt states in the nation. If California real estate is near bottom, that augers very positively for the residential housing market nationally.
The case against the housing market seems to be based on the ongoing high rate of defaults and foreclosures. Since defaults are sensitive to the economy, a high level of unemployment should keep defaults elevated for some time to come, even if the sales and construction pick up ahead of a decline in defaults. While defaults may put supply into the market, those units are being absorbed by buyers, since sales have not faltered.
After roughly two years of sharp declines, sales of new and existing homes have been fluctuating within narrow ranges for several months already. (Reports due this week will likely show that new and existing home sales continue to hold up in May, but are increasingly likely to show some gains, the rise in mortgage rates notwithstanding.) Despite the still high level of foreclosures, inventories continue to fall. Existing housing stocks have fallen sharply since last summer, while unsold new construction has declined for 26 months in a row! With new starts at very low levels and few new units in the construction pipeline, an already low level of stocks will fall even further over the next several months, no matter what else may happen. Instead, it seems likely that new construction will likely start to rebound by this summer.
Signs of stability in housing are part of the green shoots thesis, along with some modest rebound in consumer spending, declines in initial unemployment claims, a small increase in auto sales, and increased production plans. Because new construction is far below underlying population trends, a sizeable rebound in construction is due. That should modify descriptive phrases of the economy from green shoots to blossoming recovery.
Download this article in PDF Format
|
|
