Posted on 31 Aug 09
The worst U.S. housing market since the Great Depression may be on the mend after prices rose in 18 of 20 U.S. cities in June, existing home sales hit a two-year high, and new home sales gained for a fourth consecutive month.
“The sense that something is changing is definitely in the air,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s. “After three years of decline, we might be seeing a turnaround.”
Lower home prices and government stimulus efforts have spurred demand and pared the supply of existing homes to the fewest in two years, while sending new-home inventory to a 16- year low. Real estate sales buttress consumer spending, which accounts for about 70 percent of the economy, because new owners tend to buy appliances, drapes and furniture.
The S&P/Case-Shiller home-price index, which tracks 20 metropolitan areas, showed a gain in 18 cities during June, according to an Aug. 25 report. Detroit and Las Vegas were the only two that declined. The Federal Housing Finance Agency national index showed a 0.5 percent increase during June with increases in five out of nine U.S. regions, according to an Aug. 25 government report.
“Evidence is mounting that the worst of the economic downturn is behind us,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday in a speech in Chattanooga, Tennessee. “The beginning stages of recovery are underway.”
Other federal officials are less optimistic. The jobless rate, which hit 9.5 percent in June before dipping to 9.4 percent last month, may rise to 10 percent by the end of 2009, according to an Aug. 25 report by the White House Office of Management and Budget.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the report said.
About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a Deutsche Bank AG report this month. Deutsche Bank analysts Karen Weaver and Ying Shen forecast that by the end of the year, as many as 48 percent of mortgages may be “underwater.” That means few homeowners will be able to refinance or take home equity loans to get cash.
Leading the Way
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Home resales gained strength an average four months before the end of a recession, single-family housing starts improved for seven months, and new-home sales grew for eight months.
Improvements in the unemployment rate lagged behind the start of a recovery by an average six months, according to Berson, the former chief economist of Washington-based Fannie Mae.
Existing home sales already have reached that marker, gaining for the last four months. Single-family housing starts improved for the last five months, two months short of the recovery average, and new-home sales jumped 9.6 percent in July, the most in four years, halfway toward the average eight months of consecutive gains before the onset of economic improvement.
Purchases of new homes in July jumped 9.6 percent, more than forecast and the biggest increase in four years, to a 433,000 annual pace, figures from the Commerce Department showed yesterday in Washington. Economists had estimated new home sales would increase to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. July’s sales pace was the highest in 10 months and exceeded all estimates, which ranged from 365,000 to 420,000.
Some of the gain was fueled by a tax credit of as much as $8,000 for first-time buyers and mortgage rates set artificially low because of the Federal Reserve’s purchases of mortgage- backed securities, said Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts.
“Will this be sustainable over the long term?” Retsinas said. “That remains to be seen.”
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in new-home sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down 35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Existing Home Sales
U.S. sales of existing homes jumped more than forecast in July to the highest level in almost two years, according to the National Association of Realtors. Purchases climbed 7.2 percent to an annual rate of 5.24 million, the most since August 2007, according to an Aug. 21 report by the Chicago-based realtors group. The gain was the biggest since records began in 1999.
Home prices probably will fall 13 percent in the current quarter compared with the drop of 16 percent from April through June, the realtors group said in a forecast on its Web site. Price declines may slow to 2 percent in the fourth quarter before gaining 2.3 percent in the first three months of 2010, the realtors group said.