Housing Market Still Struggling; Positive Signs Beginning to Emerge

With rising energy prices, falling nonfarm payrolls, a plunge in consumer confidence, and a host of other negative indicators, economists have plenty to worry about. Their biggest concern, however, continues to be the housing market. Yet there is finally a little hope that the worst may be over.

According to the S&P/Case-Shiller indices, housing prices are still falling. Furthermore, they are still falling at an accelerating rate. This is the bad news. However, for the second month in a row, the rate of acceleration has declined. While this is not a reason to start celebrating yet, it is a necessary sign before the crisis finally ends. And because there is a two-month delay in the numbers, things may actually be a little better than the available data suggest. Right now, economists are studying April's numbers. The figures for May won't come out until the end of July.

Another encouraging sign is the recent week-over-week increase in mortgage applications for both refinancings and home purchases. While total applications were down almost 23% from a year ago, applications for home purchases were up 2.8% from the prior week.

Some parts of the country are also seeing interest from foreign investors who are backed with stronger currencies; and vulture investors are getting interested in purchasing condos in bulk in places like Miami. The Fed is hoping for more such signs that the worst for housing is over. Because inflation is becoming a concern, the Fed is itching to start raising interest rates. It will not do so, however, until it is believes the housing debacle is nearing an end.

Comments

[ArnoldCountry:]

No offense... but I would not get optimistic yet! You look at the Countrywide deal, Indymac shutting down mortgage lending and it appears Wachovia and WAMU are coming up right behind them, that is happening for a reason. Furthermore, the news today is that FNMA and FHLMC need to raise serious capital and are having problems. All of that equates to tighter lending standards and higher cost. Couple that with Option ARM resets and just a general desire by homeowners to walk from properties that they are substantially under water and the future continues to look gloomy. I would also argue that the litigation cycle of this has not really kicked in. Lawyers are just now beginning to understand the twists and turns necessary to get homeowners out of these transactions. I am betting on keep away from saying that anything is "positive" related to real estate until we take a look at it around this time 2009. A slight blip is meaningless when we see foreclosures doubling and tripling over the next few months and option arms begin resetting at an alarming rate. Good news will come... just not anytime soon.

2008 Jul 07 11:04 PM