Home prices rise, but is it for real? Is it for our good?
|August 1, 2009||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
Home prices rise, but is it for real? Is it for our good?
Is The Worst Of The Economic Storm Over? Here’s Why Not
Using an older official method of calculating unemployment, which takes into account “discouraged workers,” it puts the national rate at just over 20%. We trim, blend, and append four 2009 articles from: (1) Reuters, July 22, on home prices; (2) Reuters, July 27, on home sales by Neil Stempleman; (3) Christian Science Monitor, July 28, on foreclosures by Mark Trumbull; and (4) CBS News, July 17, on continuing recession by Declan McCullagh.
by Reuters, by Stempleman, by Trumbull, and by McCullagh
- FHFA’s Home Price Index Rises 0.9% in May
Prices of U.S. single-family homes rose by a seasonally adjusted 0.9 percent in May from April but were down 5.6 percent from a year earlier and 10.7 percent below their April 2007 peak, the Federal Housing Finance Agency said on Wednesday. Their index is calculated using purchase prices of houses financed with mortgages that have been sold to or guaranteed by mortgage finance sources Fannie Mae or Freddie Mac (and, Editor notes, not accurately reflective of the rest of the market; the Case-Shiller Index is widely considered more accurate).
- U.S. new home sales rise sharply in June
Sales of new single-family homes in the United States rose in June, up 11 percent from May, while the inventory of homes for sale fell to the lowest since 1998 February, more than 11 years ago.
Yet the median sale price for a new home fell to $206,200, down 5.8 percent from the previous month, and down 12 percent from a year ago.
- Home prices rise, but is it for real?
One home price index rose for the first time in three years Tuesday, but foreclosures still pose a hurdle to market stability.
The Standard & Poors Case-Shiller Home Price Index for 20 major cities rose 0.5 percent in May from its level in April. That was the first rise in this index since 2006 July.
For four months in a row now, the Case-Shiller index has shown a slowing in the rate of home-price declines, when measured on a year-over-year basis.
At long last, the downturn in the US residential real estate market may be drawing to a close, economist Jan Hatzius at Goldman Sachs said in a report last week. But our baseline expectation remains that the Case-Shiller index will fall 40 to 45 percent from peak to trough, which implies another 10 percent drop.
He expects that additional drop to occur between now and the first half of next year (which, Editor notes, is perfectly in line with the 18-year land-price cycle that the mainstream keeps mum about).
Foreclosure sales were 31 percent of sales in June, down from 45 to 50 percent of housing transactions earlier in the year, according to Goldman Sachs.
The foreclosure wave isnt over, and many analysts dont expect it to level off until 2011, because of rising unemployment and the upward reset of many adjustable mortgage rates (which, Editor notes, should keep prices bouncing around the bottom during then).
- Is The Worst Of The Economic Storm Over? Here’s Why Not
The Dow Jones Industrial Average leapt about 7.3 percent this week to its biggest weekly gain since March.
Yet in the rest of the economy Heavy consumer debt loads have not vanished. Neither have the housing market’s woes, and still-to-come price declines in many areas. CIT Group’s potential demise — for once, a Wall Street firm that didn’t get a bailout — suggests the financial contagion has not run its course.
Foreclosures are at a record high, despite the federal government’s best efforts to lessen them, and jumbo loans remain difficult to obtain in pricier areas. If you believe that house prices will tend to return to their long-run, inflation-adjusted mean, metro areas like San Francisco, New York, and Washington, D.C. have a long way to fall.
Then there’s unemployment. Fifteen states have crossed the threshold of 10 percent unemployment, and more will likely follow.
Using an older official method of calculating unemployment, which takes into account “discouraged workers,” it puts the national rate at just over 20 percent.
Meanwhile, it will take at least two years, and probably more like three to five years, to eliminate spare capacity in the manufacturing sector.
Politicking in Washington isn’t likely to aid economic fundamentals. The Obama administration is contemplating sweeping changes to the financial regulatory apparatus — never mind that a crop of regulatory agencies, sporting initials like SEC, FDIC, FINRA, OCC, NCUA, FFIEC, OTS, FHRA, and FRB failed to prevent last year’s turmoil, and to some extent even aided it through regulatory failure and artificially low interest rates.
The Congressional Budget Office’s has said the health care proposal would increase, not decrease costs spent in the area.
All of these pending legal and regulatory changes create uncertainty, and could yield higher taxes, neither of which delights investors. They also produce opportunities for what economists call “rent-seeking,” a term meaning seeking favors through the political system at someone else’s expense (which may aid the victor, true, but not the general public).
All this should be a cautionary note. Bubbles don’t deflate immediately, economic distortions take a while to unwind, and week-long stock market rallies may provide only temporary hope.
Jeffery J. Smith runs the Forum on Geonomics.
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