Home Resales at Bottom

Economists React: Home Resales at Bottom, Prices Have Further to Fall

By Phil Izzo

Economists and others weigh in on the increase in existing-home sales.

• Home sales appear to have hit a bottom but expect only a very modest upswing in coming months. While housing affordability is extremely elevated — reflecting the combined forces of low prices and low mortgage rates — it will be difficult for sales to show much improvement as long as the unemployment rate is on the rise. Moreover, the influx of foreclosures onto the market is expected to act as a significant headwind for home prices — although we do expect the pace of home price declines to begin to slow noticeably in coming months. –David Greenlaw, Morgan Stanley



• Single-family home sales look to have bottomed out in the last six months although a very large percentage of the sales (45% in April according to the NAR) are distressed sales (foreclosure sales are only recorded in these data if the home is listed on the MLS, which suggests that these data both understate sales and the proportion of sales that are distressed). –RDQ Economics
• > Part of the market clearing process is that distressed properties must be sold, so the fact that this is occurring is good. Still, it certainly depresses prices, and there are plenty more foreclosed (or soon to be foreclosed) homes in the pipeline. The inescapable conclusion, therefore, is that median sales prices will continue to decline for the foreseeable future. –Joshua Shapiro, MFR Inc.
• While we believe sales will increase in the short-run, the medium-term picture is more difficult to judge. With such a large share of market being distressed sales, any eventual fall in the supply of distressed properties could restrain total sales for a time. –Abiel Reinhart, J.P. Morgan
• Falling prices, incentives such as the first-time buyer tax credit, and increasingly aggressive investors eager to snap up properties, mainly to turn into rentals, are sparking sales on the low end of the market, but sales of higher-end homes are stagnating. According to NAR, 45 percent of all sales in April were distress sales, with first-time buyers accounting for roughly 40 percent of all sales. Meanwhile, NAR estimates homes priced at $750,000 or higher are taking (a median) 40 months to sell. Clearly, the lack of move-up buyers is hampering homes in the middle-to-higher end of the price range, and the difficulty in securing financing on properties with prices above the conforming loan limit is choking off the sales in the higher price ranges. –Richard F. Moody, Forward Capital
• Surprisingly, the median and average home price measures both increased in April as sales surged in the expensive Northeast area. The increase in homes for sale is a reminder that there is a huge supply problem that needs to be worked down which will continue to depress housing starts in the future. –Steven Ricchiuto, Mizuho Securities
• Don’t be alarmed by the jump in months’ supply, up to 10.2 from 9.6; it’s all seasonal. We reckon seasonally adjusted single-family home supply was unchanged at 9.2 months, and the slow downward trend continues. But there is a long way to go before prices stabilize. –Ian Shepherdson, High Frequency Economics
• The rise in inventory suggests foreclosure activity may be adding homes to the market faster than sales are removing them. House prices fell 15.4% in the year to April according the report, and we suspect that prices are likely to continue to fall until inventories can be reduced to more normal levels. –Nomura Global Economics
• The increase in inventories was largely driven by seasonal factors and reflects sellers entering the spring market. Indeed, inventories have eased from the highs recorded in 2007 and 2008. According to the National Association of Realtors, distressed sales accounted for a hefty 45% of all sales in April. A jump in defaults pushed foreclosures to new record highs in March and April as moratoria plans adopted last fall were recently lifted. Rising foreclosure sales should provide further support to total resale volumes over the next few months. High inventories and the large proportion of distressed sales continued to exert significant downside pressure on prices –Anna Piretti, BNP Paribas
• There is evidence that the perception of a housing market correction bottom may be some what premature. Indeed, despite the favorable affordability conditions, the weak economic backdrop facing U.S. households suggests that the correction in the U.S. housing market is likely to continue for some time, even though the pace of deterioration in the sector may ease in the coming months. –Millan L. B. Mulraine, TD Securities

SOURCE: blogs.wsj.com