The latest round of housing statistics — sales, starts, homebuilders’ outlook surveys and earnings reports — offered little hope that residential real estate would be back on its feet anytime soon.
“Housing is bust, and wishful thinking cannot unbust it anytime soon,” says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Just to recap what we learned this week: New home sales plunged 6.6 percent in June to 834,000, just above the seven- year low set in March. Sales are down 22 percent from a year earlier, even with builders throwing in the kitchen sink to sweeten incentives and lighten the load (inventories).
Home resales fell 3.9 percent last month to 5.75 million, a five-year low. They’re down 11 percent in the last 12 months.
The only surprise is that prices haven’t fallen more. The median price of an existing home was unchanged from a year earlier while new home prices fell 2.2 percent, removing the refinancing/cash-out option for strapped homeowners but not much of a real loss given soaring home prices from about 2001 through 2005.
Shepherdson warns against taking any comfort in the stabilization in home prices for two reasons: one, the deterioration in the supply picture; and two, the lack of adjustment in median prices for either seasonal variations or the mix of properties sold from one month to the next.
Because most of the problems have been in the subprime and Alt-A sectors, and because non-prime borrowers probably buy lower-priced homes, “their absence from the market will limit the speed of the decline in the median home price,” he says.
Haven’t we seen this movie before? Every bubble has a credit kicker when the price of whatever asset folks were chasing stops rising. Banks find religion when it comes to making new loans. Regulators step in to make sure there will be no repeat of the last bubble. Consumers save more; businesses invest less.
Housing has been the economy’s weakest link for some time, subtracting about 1 percentage point from growth in every quarter from the second quarter of 2006 through the first quarter of 2007.
Residential investment, as it’s referred to in the gross domestic product accounts, may not be the real threat to the U.S. economy. The danger lies in the fact that “there’s a lot more household debt associated with housing” than there was with the stock-market bubble, Carson says.
Maybe you can take housing out of the economy for analytical purposes (see “GDP ex-housing”). But when it comes to the real world, the two are inextricably linked.