So over the past few weeks lagging housing data has shown some signs of hope. We have seen an improvement in existing home sales, new home sales and pending home sales. Mortgage rates are at an all time low and mortgage applications are on the rise.
So what does this data mean in respect to the ailing housing market? Well really in the context of actual numbers, these improvements are relatively small and in a typical market time uneventful. Some see these improvements as a possible bottom forming in the housing market (sound familiar, November 2008 stock market). Others see this as a possible “dead cat bounce” in the real estate market. A “dead cat bounce” refers to a small improvement before continuing down.
Real Estate values are still declining according to the S&P Case Shiller index data released March 31rst, 2009 which showed that average housing prices are back to 2003 levels. Also more than half of sales are distressed. The increase in sales is definitely positive, but many of these sales are speculative which does not help the stabilization of pricing. Just like in the stock market, you need individuals buying with the intention of staying (no flipping) to stabilize prices.
Unemployment is on the rise and the world economies are continuing to weaken, which will add to large company layoffs especially if they rely heavily on overseas revenue. High unemployment does not help the housing.
Mortgage rates are being artificially suppressed by the US government, what happens when they stop supporting them? What should mortgage rates really be? Rates are at extreme lows, shouldn’t sales reflect this extreme a little more to the upside. If we do slide into a deflation spiral, then real estate prices will most likely fall more which would wipe away the benefit of the lower rates.
Real Estate was bought and sold like stocks over the past 8 year, so more than likely it will correct the same way. It is typically not a good idea to try to catch a falling knife, but if you are buying and selling into this market at the same time, then I guess it would be a wash.
