Thursday, February 26, 2009

We're Nowhere Near a Bottom in Housing

First -- let's deal with this:

Home resales fell 5.3% to an annual rate of 4.49 million, the National Association of Realtors said Wednesday, noting that buyers were restrained by negotiations in Washington over President Barack Obama's economic-aid package. The plan, as signed last week by Mr. Obama, includes an $8,000 tax credit for first-time home buyers.

"Given so much stimulus-package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of the housing stimulus," NAR economist Lawrence Yun said.

No. People stayed away from the housing market because 1.) job losses are mounting, 2.) house prices have already dropped considerably, and 3.) equity prices have dropped. Combine points 2 and 3 and you have the lowest consumer confidence level in several decades. This is not an environment where people buy durable goods. Here's the chart to price it:

Click for a larger image

So -- this has squat to do with the housing credit in the bill.

And so long as this is happening:

...the median home price dropped 14.8% in January to $170,300 from the year-earlier level. The year-over-year drop in December was 15.2%.

We're nowhere near a bottom in prices. When we start to see y/o/y drops of 3%-5% we'll know we're near the bottom. But until we see those kind of numbers in the y/o/y figures we're nowhere near done with the housing mess.

Oh -- that that won't be happening anytime soon:

A bloated supply of unsold homes is contributing to sharp price drops. Inventories of previously owned homes fell 2.7% at the end of January to 3.6 million available for sale. That represented a 9.6-month supply at the current sales pace.

"Unfortunately, it's still so high, at just under 10 months, that it guarantees further price falls," said Ian Shepherdson, an analyst at High Frequency Economics. Economists say a normal supply level is about five months.