Housing Market May Have Found the Bottom

One of the more perverse (and comforting) realities about doing economic forecasting is that you can get a reputation for wisdom by merely being wrong less than your audience. So emboldened I am going to go out on a limb and predict that the national decline in housing values has hit bottom, or at least the trend has. By that I mean that the indicators of housing sales have reversed themselves within the past 90 days, and that housing values should begin to firm and move upward by the early part of 2009.

 There’s alot of reasons that should sound like a damn fool forecast, not the least of which is the almost certainty of recession symptons (if not the official recession) in 2009. Higher unemployment, stagnant wages and potentially higher prices for necessities don’t make for good buying conditions; however, remember that the seeds of the decline were sown when the economy was flying at its highest in 2006.

Here’s what has finally pushed me to the side of the recovery signal: Pending home sales in August spiked over 9% compared to July. Now there’s no assurance in that, and in fact, the data probably includes alot of bad anecdotal news, like “vulture buying” and price capitulation in overbuilt markets. But the diamond in the rough of the August data was that the increase marked the third straight incidence of an increase following an earlier increase/pullback. That probably sounds confusing. What that shows is that the increase in pending home sales bounced back, tested the bottom and bounced back higher again. That happened in April over February, June over April, and now August over June. If this was a stock chart you’d be calling it a buy signal.

PHSI chart shows pending sales since 2005

PHSI chart shows pending sales since 2005

What’s also good in the August data is that the biggest gains regionally were in places previous in the worst shape: Naples FL, Las Vegas, Central California.

Regardless of the discounting that may be involved, the removal of housing from the inventory is the first step in reducing supply before prices can start to rebound. The realistic prediction is that recessionary forces will probably keep demand from growing for the next 6-18 months, but a decline in supply will firm housing prices ahead of renewed demand, whenever that may occur. And don’t forget that it’s the decline in home values that exposed the weakness of the lending standards and started this whole financial crisis 15 months ago.

Month Pending Home Sales Index
Aug-05 124.4
Aug-06 111.9
Jul-07 92.8
Aug-07 85.8
Sep-07 87.8
Oct-07 89.8
Nov-07 86.9
Dec-07 85.9
Jan-08 86.2
Feb-08 83.8
Mar-08 83
Apr-08 88.9
May-08 84.5
Jun-08 89.4
Jul-08 86.5
Aug-08 93.4
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s