Economists React: Some Hope for Home Sales?

Economists and others weigh in on the the decline in existing-home sales

From blogs.wsj.com



There may be some hope. Yes, demand did ease in January, but purchases of single family homes actually rose. That’s something of a victory for the market as it has been almost a year since that happened. Condo sales plummeted, but this is the more volatile segment of the market. Meanwhile, prices of single-family houses continue to drop and were down over 5% since January 2007. That decline could start accelerating as the inventory of homes on the markets is rising sharply. With so many defaults making their way back on to the market and market prices should be depressed further. Eventually, sellers will end their denial and realize that if they want to unload their homes, they will have to cut prices even more. With mortgage rates low, declining prices should bring in more buyers. I expect sales to bottom over the next few months, though prices are likely to continue falling for quite some time. –Naroff Economic Advisors



The pace of contraction has slowed in recent months, giving some hope to the notion that the bottom of the sales trend is in sight. Nevertheless, the inventory of unsold homes remains very high, pressuring both new construction and particularly home prices which have now been falling on a year-on-year basis for 18 months. The housing correction, and its affect on the financial markets, will continue as long as home prices are falling. We haven’t reached bottom yet. –Steven A. Wood, Insight Economics



Sales ran below the level implied by the pending sales index — it pointed to a number near 5.1M in Jan — for the fourth straight month. This could mean people are now walking away from completing transactions even after paying a deposit at contract signing, which is not a good sign. –Ian Shepherdson, High Frequency Economics



Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. While price declines seen so far represent a reasonable start, we still have a long way to go before prices sink to levels necessary to balance supply and demand in the housing market. –Joshua Shapiro, MFR, Inc.



Inventories of homes for sale rose 5.5%, to 4.19 million, offsetting part of the decline in November and December. However, the data are not adjusted for seasonal variations, and homeowners commonly pull their homes off the market at year-end, likely explaining much of the volatility. After seasonally adjusting the data, inventories on the market appear to have increased notably in both December and January. –Michelle Meyer, Lehman Brothers



We believe the resale and inventory figures may be slightly understated as a result of the recent rise in foreclosure activity. The NAR’s data include all sales involving a member agent. Anecdotal reports indicate that real estate agents take part in most foreclosure sales but, in some instances, a bank or other entity will deal directly with the buyer and no agent is involved. In these cases, the sale is unlikely to be reported. –David Greenlaw, Morgan Stanley