Calculated Risk: New Home Sales Bottom In H2'08? [Housing Tracker]

by: Judy Weil

House Price Sales Data 

Bank Stocks Drop Anew Amid Worry Over Falling Home Prices. “JP Morgan (NYSE:JPM) expects "a continued decline in U.S. housing prices." The dour assessment included a roughly $1.5 billion trading loss related to the largest U.S. bank's holdings of mortgage-backed securities… JPM has been ahead of the curve over the past year in sounding the alarm about emerging troubles… The steep losses on sales of foreclosed homes are painful for banks and investors in the short run but should help clear the backlog… and clean up the banks' balance sheets… A 1,230-square-foot home in Corona, Calif., was sold by a unit of investment bank Credit Suisse in June for $198,000, down from $450,000 when the property sold in a regular transaction in December 2006.” (WSJ, Aug. 13)

A Few Housing Themes. “There will be two housing bottoms… For existing homes, the most important number is price. So the bottom for a particular area would be defined as when housing prices stop declining in that area. Historically, during housing busts, existing home prices fall for 5-7 years - so I'd expect to start looking for the bottom in the bubble areas in 2010-2012 or so. For new construction, we have several possible measures of a bottom. These include Starts, New Home Sales, and Residential Investment as a percent of GDP. These measures will hit bottom much sooner than for prices for existing home sales, and one or more of these measures might even bottom in H2’08.” (Calculated Risk, Aug. 12)

Freddie Mac Q2’08 Earnings Call Transcript. Patti Cook, EVP, Chief Business Officer: “The second quarter is a quarter that's generally good for house prices. And you saw it, a substantial improvement even on a seasonally adjusted basis. But, I think, given all the uncertainty in the market, the rising population in REOs, the uncertainty around the economy, I think it would be too early at this point to say that house price declines have moderated. As Dick suggested in his remarks, and I, in line, we're considering – continuing to anticipated further declines so that the order of magnitude peak to trough goes from roughly 18% to 20%.” (Seeking Alpha, Aug. 6)


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