The Road Ahead for Housing

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The Road Ahead for Housing

Beginning in 2006 and continuing to the present, the housing market has experienced a cataclysmic meltdown as massive as the collapse of the “tech bubble,” but far more pervasive. You already know a lot about that. The questions now are: Where do we stand? What lies ahead? What broader demographic, economic, and attitudinal factors are likely to determine housing’s future? What does this mean for you?

For example, September 2011 sales of existing homes came in right as the consensus expected, at a 4.6 to 5.0 million unit annual rate.1 A large portion of sales came from distressed properties, such as foreclosures and short sales. But fortunately, the inventory of existing homes was down 13% from a year earlier and the number of homes available for sale in September was at the lowest level for any September since 2005. With respect to the prices of existing homes, the Case-Shiller Index, which measures seasonally-adjusted prices in the 20 largest metro areas, was unchanged in August 2011 and down 3.8 percent versus a year earlier. The FHFA index, which measures prices for homes financed by conforming mortgages, declined 0.1% in August and was down 4% from a year earlier.2 By August 2012, we believe these price indices will be up slightly from current levels.

Meanwhile, new home sales increased 5.7% in September and beat consensus expectations.3 The best news in this report was that the months’ supply of new homes declined to 6.2 in September. With the exception of the surge in sales in early 2010 due to the one-time home-buyer tax credit, this is the lowest months’ supply reported since 2006. Meanwhile, the absolute number new homes for sale was at the lowest level since the government began keeping records. On the price front, the median price of a new home was down 10.4% versus a year earlier, while the mean average price was down 9.9%.

Whether you’re looking at new or existing homes, both prices and unit volumes have declined sharply since the peak in 2006. And, foreclosed homes and empty subdivisions still litter the landscape. In short, the housing market is in shambles. However, there is plenty of reason to believe that U.S. housing is now in recovery mode.

Looked at this way, it's notable that home building soared 15% in September 2011, bouncing back after the unusually harsh weather we saw in August.4 However, most of the increase was due to a 51.3% spike in multi-family units, which are volatile from month to month...

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