Earlier this week we have had data from both existing home sales and new home sales. Both have been abysmal.... and I'm not speaking in hyperbole. As I often say, focus on existing home sales because it is generally around 90% of the market - but currently up to 95% since new homes are simply so uncompetitive with so much distressed inventory on the market. That said, in one story I read on the new home sales figures yesterday an amazing statistic:
Sales are now just half the pace of 1963 -- even though there are 120 million more people in the United States now.
Again that speaks to new home sales, rather than the more important existing home sales but still astounding.
1963 population: 190M
1963 new home sales: 560K
Current pace 2011: 250K
(Worst year ever was 2010 @ 323,000)
Whatever the case, the data is making certain pundits who did declare a housing bottom in 2009... and 2010... look a bit silly. I am sure they will go to their typical revisionist history and/or just repeat it again this year. Eventually they will be right and can claim credit. Indeed it is almost that time of year - spring/early summer buying season - when housing data ALWAYS picks up and the "it's a housing bottom" cadre will come to your friendly national business television station.
With that said we are getting closer to the median housing value I outlandishly proposed in late 2007 when the "housing prices cannot fall nationally" crowd was crowing exceptionally loud. [Dec 6, 2007: Analysis - What Should Median Home Prices be Today?] Unfortunately, our Fed head in chief was one of those believers. Why are we still talking about a housing problem?)
Historically, a regional housing recession has lasted around 7 years. So if you use 2007 (maybe 2006) as the starting point of the downturn, we're talking 2014ish for the real recovery. (I am excluding some of the micro climates of course like Washington D.C. which is in it's own government bubble, Manhattan, or some cities in the upper plains.)
Of course this was the mother of all bubbles in housing, with many unique features - so the recovery is going to be disjointed. And rather than letting the market settle (more painful in short run, but a quicker path to a real recovery), the government stepped in with countless measures: from outright bribery (go buy a home, here is $8000), to record low interest rates, to 95% of the mortgage market now in Fannie, Freddie, FHA hands, to implicitly backstopping the banks while they "mark to myth" the value of defaulted homes on their balance sheets, putting them in no rush to foreclose and admit reality. So in effect we've "Japan-ized" our housing market.
As for the recovery, we have a lot of issues highlighted in the Gary Shiller piece below that are secular in nature and will retard any actual bounce - frankly with some of the middle class permanently eradicated the pool of buyers has shrunk (barring another substantial drop in prices). Of course about 10% of all current mortgage owners sit in a home they don't make a payment on, so we still need to expunge that group in the coming years. And with wages stagnant for many, and the new jobs created in the recovery often paying far less than those that existed 5 years ago, there is not a huge pool of buyers out there - especially if we speak of anyone who can afford to put down more than 3.5%. Don't even ask what happens to the market if mortgage rates on a 30 year go back to an unruly (gasp) 6.5%.
But other than those inconvenient issues I'm bullish and calling for a housing bottom for the 3rd year in a row - because that's fashionable and is far easier to explain in a 45 second spot on pundit TV.