Tuesday, January 27, 2009

We're Nowhere Near A Bottom In Housing

From Bloomberg:

Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.

Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.

As usual, there were people trying to make the news story seem like a great event. The bottom line is little has really changed: the housing market is in terrible shape.

1.) Record price drops don't occur at market bottoms; the occur on the way to market bottoms. When price drops start to slow down -- when the year over year rate of change slows down from 15% levels to 3%-4%, then we'll be a lot closer to the bottom.

As if on cue:

Home prices in 20 U.S. cities declined 18.2 percent in November from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank.

The decrease in the S&P/Case-Shiller index was in line with forecasts and followed an 18.1 percent drop in October. The gauge started falling in January 2007, and year-over-year records began in 2001.

Record foreclosures have contributed to more than $1 trillion in losses worldwide that have prompted banks to shut off access to credit. While plunging values have made homes more affordable, they have also hurt household wealth, contributing to a slump in spending that’s likely to continue for the first half of the year.

2.) Demand does not pick up when job cuts are happening at a strong pace:

Rising unemployment and announcements of huge job cuts have sapped consumer confidence nationwide, discouraging some potential buyers from making a move. "People rightly feel less secure in their future income," said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California, who believes the housing market won't recover until the unemployment rate stops rising.

Several U.S. employers announced layoffs totaling 65,000 jobs on Monday, including 20,000 at Caterpillar Inc. and 7,000 at Home Depot Inc.

So far this year, big U.S. employers have announced plans to shed more than 140,000 jobs, on top of the 2.5 million shed last year, the biggest drop since 1945.