The week starts on a positive note. From Bloomberg on Monday:
Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.
Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade.
Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.
“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming -- it’s somewhere in the next three to six months. There is light at the end of the tunnel.”
However, while Calculated Risk agrees that new home sales have probably bottomed, house prices may take much longer to do so.
It is way too early to try to call the bottom in prices. House prices will probably fall for another year or more. My original prediction (a few years ago) was that real house prices would fall for 5 to 7 years (after 2005), and we could start looking for a bottom in the 2010 to 2012 time frame for the bubble areas. That still seems reasonable to me.
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The Goldman report overlooks three key points:
1) Unemployment – Outright joblessness is kissing 10% right now. I don’t see any credible economists arguing that that number is dropping anytime soon. While a case can be made for a “jobless recovery,” no one is saying that people are getting back to work. The so- called underemployment rate — which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking — reached a record 16.8 percent. With a growing number of unemployed people, a smaller pool of people have the money to buy homes.
2) Shadow housing inventory coming to market – By one estimate, seven million housing units are scheduled to come online. In a perfect world, it would take almost a year and a half to sell just those units. How is a troubled market supposed to both absorb several million units, and push the units already in the market out the door? An $8,000 tax credit?
3) Already known distressed assets – The cherry on this sundae (and you know the main ingredient of this sundae) is that half of all residential mortgages will be underwater by 2011. If more people lose their jobs, have increasingly negative equity in their homes, and some lenders/servicers take their sweet time before foreclosing, why wouldn’t more people throw their keys to the bank?
For Goldman’s sake, I hope the money Goldman is investing on this bet does not come from the Executive Bailout Fund.
http://multifamilyinvestor.com/exclusive-we-didnt-find-what-goldman-was-smoking-but-we-discovered-their-housing-report/
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