Desperately seeking good news

After more than two-and-a-half years of median home price declines, everyone is hoping for an upturn. The trouble is that the data just won’t cooperate.  In mid-May, NAR reported continuing price declines nationally of nearly 14 percent for the first quarter of 2009. This was due to the increase in foreclosure sales at deep discounts: good for sales activity numbers but not so good for median prices, especially in communities with significant foreclosures.

The Case/Shiller numbers were worse: a 19-percent decline in national median prices for the quarter and an 18.7-percent decline in their monthly 20-city index year-over-year.  The 20-city index has now decreased 32.2 percent from its July 2006 peak and has fallen for 32 straight months. Yikes!

Phoenix and Las Vegas are now down more than 50 percent from their respective peaks in 2006. The primary pricing forces in these markets these days are foreclosure sales, which account for 50 percent of the transactions. Dallas’s prices have fallen the least of the 20 cities in the index at 11 percent from its peak. Yikes again!

So the market is looking for favorable signs anywhere. NAR President Charles McMillan says “traditional homes in good condition have held their value much better, so owners shouldn’t be overly concerned about median prices.” (CNNMoney.com, May 12, 2009)  This is correct, if you do not need to sell in the next several months (years?) or if you do not plan to refinance anytime soon.

NAR’s chief economist Lawrence Yun says “housing affordability conditions are at record high levels and we expect a measurable increase in home sales during the second half of the year, which would help stabilize prices in most areas.” (CNNMoney.com, May 12, 2009)  Sales volume is already way up in the distressed markets (e.g., up 116.8 percent in Nevada, 80.6 percent in California, 50.2 percent in Arizona and 25 percent in Florida) but prices continue to fall. Now there is evidence that the “bottom fishing” going on in these markets is contributing to lower prices as well. This is hardly stabilizing market conditions.

Many economists search for improving signals in various markets but almost always indicate that the current market may take considerable time, maybe years, to recover. This is increasingly the tone amongst many private-sector forecasters. We may be on a slow train to recovery and when we arrive at the station, we might have trouble finding the economic growth and house price appreciation that we grew to love so much.

Related posts:

1. Economist: ‘There’s plenty of good news, relatively speaking’

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Tags: economy

This entry was posted on Wednesday, June 24th, 2009 at 9:31 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed.