Home sales continued to slide in June, stoking fears that the slowdown could last at least until 2009
First, it was the second half of 2007. Then it was 2008. Now analysts are saying the national housing market may not rebound until 2009
On July 25, the National Association of Realtors reported that sales of existing homes fell 3.8% in June to a seasonally adjusted annual rate of 5.75 million units, contributing to the bleak-and-getting-bleaker outlook.
Mixed Signals Confuse Buyers
The NAR believes consumer psychology is to blame. "Homebuyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," said NAR Senior Economist Lawrence Yun in a statement. Rising mortgage rates and tighter lending standards aren't helping, either, Yun said. According to Freddie Mac (FRE), the national average commitment rate for a 30-year fixed-rate mortgage rose to 6.66% in June, from 6.26% in May.
Two "bright spots" in June, Yun said, are the decline in housing inventory and the "modest gain" in home prices. Total housing inventory fell 4.2% in the month, to 4.2 million existing homes for sale, representing a supply of 8.8 months. In the same period, the national median existing-home price edged up 0.3% year-over-year, to $230,100. For single-family homes, the median price rose only 0.1%.
"This increase is an aberration," says Patrick Newport, an economist with Global Insight in Waltham, Mass. "Current inventory levels make it almost a sure thing that prices will continue to slide." On July 11 the NAR said existing-home prices would recover in 2008, rising 1.8%, to a median of $222,700 after a 1.4% decline this year. But Newport thinks otherwise. "Our view is that the downturn [in sales] will continue into 2008," he says. "Given the level of unsold homes, however, nominal home prices will probably not rebound until 2009."
Turning a "Huge Battleship"
Even the decrease in inventory may not be a positive sign, especially for homebuilders "The supply pipeline is just dry," says Pat McPherron, an economist with Moody's (MCO) Economy.com. "If you're a builder, why would you be building? Builders have just shut down."
The not-unexpected bad news about June home sales came just one day after mortgage broker Countrywide Financial (CFC) reported a drop in second-quarter profit and lowered its 2007 outlook (see BusinessWeek.com, 7/24/07, "Countrywide's Woes Deepen"). Countrywide Chief Executive Angelo Mozilo said the company's results were hurt by continued weakness in the housing market, specifically softening home prices, which could take until 2009 to recover. "This is a huge battleship and it is turning in the wrong direction," he told investors on a conference call. "It's going to take 2007 to get this thing slowing down, 2008 to get it to stop, and 2009 to head in the other direction."
Despite the ugly national picture, Realtors are forging ahead, turning the focus to local real estate markets and buying opportunities—and blaming the media for the continued decline in home sales. "The numbers are the numbers," says Tom Kunz, chief executive officer of Century21 Real Estate, a division of privately held Realogy. "People are going to come home tonight, have dinner, turn on the TV, and see that home sales declined. They're going to look at that and say 'Hell, I'll sit on the fence.'"
But both Kunz and the NAR say that buying conditions are favorable, citing the usual fundamentals: a strong job market and relatively low interest rates. And of course, they stress the fact that all real estate is local. "We've just elected that we're not going to participate in the pity party anymore," Kunz says. "The economists are talking about the United States of America, and we're talking about Hometown, USA."
Despite Boom Pockets, No Bottom
Some pockets of the U.S.—Seattle, for instance—are indeed experiencing a real estate boom. But existing-home sales declined in all four regions of the U.S. in June, led by a 7.3% drop in the Northeast. "People just don't feel the bottom is here yet," says McPherron, who is predicting a rebound in mid-2008. "It's just a really bad market."
On July 26, the Census Bureau will announce the rate of new-home sales in June. In May, sales of new homes fell 1.6% to a pace of 915,000 units, while supply climbed to 7.1 months, from 7 months. At the moment, it's looking like June's report could kick off another year and a half of bad news.