Claims of a housing rebound premature?
House and money / iStockphoto
(MoneyWatch) Today's Commerce Department report saying June sales of new single-family home fell by 8.4 percent - the most in more than a year - means the U.S. housing market hasn't bottomed out. This will come as bad news to the large number of experts and organizations which in the last month said exactly the opposite.
June sales tumbled 8.4 percent to a seasonally adjusted 350,000-unit annual rate, the lowest rate in five months, according to the report. The percent decline was the largest since February 2011.
So who missed the mark?
Caterpillar Corp. for one; in their economic outlook report, published today, says:
"Recent data suggest that housing starts have bottomed and activity is beginning to improve. Housing starts are increasing in response to rising apartment demand, low mortgage rates and more than four years of depressed activity."
And yesterday Whirlpool CEO Jeff Fetig tried to cushion a bad earnings report by saying the company expects a gradually recovering U.S. housing market to boost sales of appliances in the year's second half.
Those two companies are far from alone. On July 11 the Wall Street Journal released a survey of forecasters which found 44 out of 47 saying the housing market had reached bottom. The Journal has run quite a number of articles and columns saying turnaround time is here. Just yesterday it ran an article saying a decrease in the sales of previously owned homes was because there aren't enough homes for sale.
"Housing markets that just two years ago struggled with a glut of homes are now facing a new problem: There are fewer properties to lure buyers. Sales of previously owned homes fell 5.4 percent in June from May to a seasonally adjusted annual rate of 4.37 million, the National Association of Realtors said Thursday."
The article cites several experts as the source of the too-few-homes idea and it is definitely true that banks have been keeping foreclosed homes off the market in order to boost prices. However, there is another standard explanation for a decline in sales that the article didn't address: Fewer buyers.
A week ago BloombergBusinessweek proclaimed that housing had gone from zombie to living:
"According to the Commerce Department, June housing starts increased 6.9 percent, the fastest pace since October 2008. That was nearly two percentage points higher than the median forecast of 79 economists surveyed by Bloomberg. Homebuilder confidence just recorded one of its biggest monthly increases in a decade, and is now as high as it's been since March 2007."
Housing starts, of course, are not the same as housing sales.
In some cases analysts got caught out when they tried to turn a smaller-than-average molehill into a markets-are-improving mountain. Zillow, a company in the business of pairing up home buyers with lenders, published this on its blog yesterday:
"After five long years of a housing recession, U.S. home values have reached a bottom, according to Zillow's second quarter Real Estate Market Reports, which were released today. U.S. home values logged their first annual increase since 2007, rising 0.2 percent over the past year. Nearly one-third of metros covered by the Zillow reports showed annual increases in home values."
Optimism is one thing, but saying a 0.2 percent price rise means turning the corner is a stretch, especially considering that the Commerce Department's report said, "Last month, the median price of a new home fell 3.2 percent from a year ago."
A lot of news outlets based their own optimism on Zillow's numbers, which they received in advance.
Zillow was far from alone in finding this mountain. CoreLogic reported on July 2 that home prices were up 2.0 percent in May compared to the previous year. It pointed out that this marked "the third consecutive increase in home prices nationwide on both a year-over-year and month-over-month basis." It then went on to predict:
"that house prices, including distressed sales, will rise by at least another 1.4 percent from May 2012 to June 2012. Excluding distressed sales, house prices are also poised to rise by 2.0 percent during that same time period."
On Monday, analysts for Goldman Sachs issued a report saying they saw, "the beginning of a longer positive trend in housing-related equities."
Nor is it only analysts and the homebuilders' trade associations saying this. On July 13, National Blackstone Group's credit unit agreed to buy a portfolio of land parcels from homebuilder Hovnanian Enterprises for $125 million and said the U.S. housing market has bottomed.
Finally, the investment web site SeekingAlpha ran a column today with the headline, "Evidence Mounts: U.S. Real Estate Market Has Passed Bottom, Entered Recovery." Maybe it depends on the evidence.
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