What's Next for Housing?

On the last trading day of 2007, existing home sales came in better than expected. Hold your horses though, we'll take you through the numbers and show you why the real message is that we have not hit bottom in real estate. That does not necessarily mean we have not bottomed in related stocks, and I've already gone on record looking for a January lift in some of these shares. November's new home sales sank 9%, so this rise in existing home sales to a 5.0 million annual pace from 4.97 million seems contradictory. Also, considering the existing market is much larger than the new market, Monday's news would seem more important.

However, lost in the numbers is the fact that new home sales data is taken upon the signing of sales contract, while existing data is taken on the closing of the sale, which usually lags by 1 or 2 months. So, if new home sales is the leading indicator, then we should see this existing sales data deteriorate for at least one or two months more. The spring is the most important selling season for housing, so a lot is weighing on what happens after February. Inventory declined, which is a very positive piece of news, but the level remains inflated. Inventory continues too high to support prices and to inspire home builders to look to expansion. We think it will be another 6-12 months before prices stabilize, and much depends on the very volatile geopolitical outlook (I'm talking about Iran).

Disclosure: none

Comments

[Malkiel]

You're falling behind man, Iran is off the table as a geopolitical problem. It's not clear to me anyway why geopolitical problems would affect the domestic housing market, but if home sales crater during this Spring season that will make our economy a geopolitical problem...

[WAKEUP]

About 40% of those signed contracts never mature into an actual transfer of deeds, due to buyer qualification problems, and other slips of the cup. There is no reason to believe that anyone has a realistic handle on where this swamp is going, yet.