Home Sales Figures Confuse Markets

According to the Standard and Poor’s/Case-Shiller Home price index, 20 metro areas showed gains of at least 1% in August over July home sales figures. In the home market, this is the most closely watched of all the indexes, and it has shown gains for 3 months in a row. Home prices, on average, have moved back to what they cost to purchase right before the bubble began in the fall of 2003. While this may not be a sales bottom, it is certainly puts homes into a price category that many people consider affordable.

Along with these rises in home sales figures have come homes sale price increases. In these same 20 metro areas, Case-Schiller shows price gains rising for the last 4 months, with prices moving up 1.2% from July to August. Robert Shiller, who created the index, said he cannot predict where home prices may go to, but he is concerned about the increase.

However, other economists disagree with fears about housing price increases. One of them, in a New York Times interview, suggests that we will see a rapid return to price declines. Another, when speaking to the Los Angeles Times, says that what we are witnessing is simply a process of stabilization.

Karl Case, the other half of the Case-Shiller index, indicates that with housing at very affordable rates, he sees a bottom. What he does not see is a rapid recovery of the economy. Evidently, consumers are in some agreement with the latter statement. The Conference Board consumer confidence index dipped during October, which, after September’s high numbers, was contrary to expectations

The largest concerns about home sales center around the possible end of the $8,000 first time home buyer’s tax credit and the possible rise in mortgage rates from the current 5% into the realms of 6%. The real estate industry, lead by the National Association of Realtors and the Mortgage Banker’s Association, are pushing hard to extend the credit. They say the tax credit has created at least an additional 400,000 buyers.

Meanwhile, one statistic that generates a cloud on the housing horizon is the number of homes in foreclosure. This shadow market, which is a term for properties that are not yet on the market but are headed there in the near future, may be up to 5 times larger than the number of homes currently for sale. This would certainly pull the flooring out from the current bottom of the market. If all those foreclosed homes hit the market at once, prices of existing homes would fall further due to oversupply.

No one knows how many of these foreclosed homes will hit the market, but banks would be wise to let these homes trickle out. If the foreclosed homes arrive in a flood, banks will also be adversely affected by the further plunge in prices.

With all of this information in hand, we can conclude, with some certainty, that there an ample supply of uncertainty when it comes to the housing market.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com
561 / 213 – 6139
www.JablonRealEstate.com