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A Turn in the Housing Market?

A Turn in the Housing Market?

By Dennis Byrne - October 25, 2008

Is it possible that the housing market has turned?

Blamed for just about everything bad that has happened recently to the economy, housing sales, I dare say, are showing signs of picking up. At the risk of being considered a lunatic, I say this for reasons of systematically gathered data, personal experience and common sense.

First the data, which hasn't and won't get as much attention they deserve, considering the fact that everyone has been blaming the dismal housing market for as far back as recent memory can take us. The good news is that the National Association of Realtors said sales of existing-home sales--including single-family, townhomes, condominiums and co-ops--for September jumped 5.5 percent higher over the previous month. They are1.4 percent higher than September 2007. That's the first time that sales have risen compared to a year earlier since November 2005.

Could this be a turnaround? Let's look at another NAR measure: its "pending sales of existing homes" index most forward-looking barometer of residential sales because it records a sale when a contract is signed, rather than at closing, which can be months later. In August, the latest month available, it rose 7.4 percent over July. More significantly, that's 8.8 percent higher over August 2007. These are the kinds of numbers that should be on the front page over every newspaper in the country--but they weren't.

The second reason for my optimism is personal experience: My wife, Barbara, sells residential real estate in Chicago's northern suburbs, and she is having the best second half of a year in sales in a long time. That follows a first half of 2008 when there were nearly no sales. The closings are coming as fast as they ever have been, and the number of active buyers and sellers are impressive, even though inventories remain high. She first noticed increased activity this spring when she told me her phone began ringing.

How to explain this when other indicators are so gloomy? She isn't sure; I'd say it's her superlative sales skills and networking. Or perhaps it's the peculiarities of market she works in. (Realtors constantly remind everyone that the real estate "market" isn't a single phenomenon, but a combination of regional, demographic and other factors that are masked by average sale figures.) Whatever the explanation, her market is picking up impressively. (Here I'll acknowledge my personal interest in looking on the bright side, but it occurs to me that the bright side could use a few friends.)

Third, it only makes sense. This flies in the face of most "experts," whose boots aren't on the ground and who predict no turnaround until possibly late next year. Credit markets won't loosen up until then, they explain; no one can get a loan, even the creditworthy.

It's not true. The credit logjam already is easing. True, your credit has to be good, but loans are available. And the loans are cheaper. Freddie Mac says the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04 percent in September from 6.48 percent in August; the rate was 6.38 percent in September 2007. Yes, home prices continue their decline (and you can bet that's what the media will focus on), but that will only fuel a turnaround. Lower prices and lower interest; what more can the prospective homebuyer want?

A residential real estate market turn-up has to come some time, and, guardedly I say the signs gradually are starting to look positive. "What we are seeing," said Lawrence Yun, the Realtors' association chief economist, "is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C. region. It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we're hopeful most of the increase will translate into close existing-home sales."

"Homebuyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," he said in a statement. "August shows some unleashing of pent-up demand before the credit crisis accelerated in September."

Yeah but, the pessimists will say, the increase is probably the result of the higher number of foreclosures, so it's not really good news at all. They point out that while one index shows that California home sales rose 65 percent in September, the biggest year-over-year increase in at least two decades, it's the result of buyers grabbing up foreclosed homes at discounted prices.

Yes, and so?

This is what has to happen before the housing market can recover substantially. Home prices already have been driven down--bad news for homeowners, but good news for buyers. Just as high quality stocks are a bargain in a depressed market, so is a quality home in a depressed housing market. A large inventory of available homes also is good for prospective buyers. So is continuing affordable interest rates. Also, the dramatic slide in energy costs will help boost consumer confidence, an essential ingredients of a housing and economic recovery. My instincts, tell me that pent-up demand is waiting for just the right moment, the right positive development, to spring loose.

That will happen if we get more good news like the strong jump in pending and actual home sales. That won't happen as long as leading media outlets continue to bury the good news, as the New York Times did in its virtual non-reporting of the strong increase in pending sales. Unfortunately, there's a political component to the lack of media interest in the good news, so it doesn't appear that we'll be treated to any reinforcing good news.

Unless, of course, Barack Obama is elected president. Then every scintilla of good news will be treated by the media like the Second Coming.

Dennis Byrne is a Chicago-area writer. He blogs at chicagonow.com.

Dennis Byrne

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