The housing market – everything you know is bad
Posted by metaphorical on 28 November 2007
The most popular article here for the past week has been a March piece, “The housing market: everything you know is wrong.”
You might wonder about why, except that there’s lots of news on the housing front, all bad. For example, there’s this in today’s NY Times.
Housing prices fell the most in almost 20 years this summer, and consumers remain deeply skeptical about the economy, according to reports released yesterday.
Prices of single-family homes in the third quarter fell 4.5 percent nationwide compared with a year ago, according to the Standard & Poor’s/Case-Shiller National Home Price Index. It was the largest drop since records for the index began in 1988.
A separate survey by S.& P./Case-Shiller of home prices in 20 major metropolitan areas showed a drop of 4.95 percent in September from a year ago, the biggest decline in more than six years. Prices declined 0.9 percent in September alone, and were down in all 20 areas, the survey found.
As well, Reuters reports that
WASHINGTON (Reuters) – Sales of previously owned homes fell 8.0 percent in September to a record low 5.04 million unit pace amid troubles in the subprime mortgage and credit markets, the National Association of Realtors said on Wednesday.
It was the lowest sales pace since the realtor group began tracking both single-family and condo sales jointly in 1999.
What we’re seeing is the effects of a number of trends, which take a long time to show up in a market like housing. There’s the sub-prime mortgage fiasco, the slackness of the economy, the weakened dollar abroad, slower consumer spending, sluggish at best employmnet growth, the high price of gas and heating oil, and a vast lack of confidence in the economy.
Pricing data in particular is misleading, because we don’t know anything like a true market value until a home is actually sold. So for example, someone lists their home for $300,000. They get no bites and eventually, a year later, sell it for $200,000. What was the market value during that year? Arguably something much closer to $200,000 than $300,000. And it certainly isn’t the $330,000 that they paid for it three years earlier.
The longer people wait to sell, the more misleading pricing data is. We also don’t really know how many people want to sell their homes, so we don’t even have good supply-vs-demand data. What we do know is that the housing market is collapsing, and it was the only thing behind whatever good enconomic news we’ve had for the past few years. It’s going to be a poor Christmas season for most merchants, and that’s going to provide more bad news for the next quarter or two at least.