Existing Home Sales Fall Again

Last Updated Mar 23, 2010 2:21 PM EDT

Economist Diane Swonk

Existing home sales numbers, released Tuesday morning by the
National Association of Realtors, declined for the third straight month,
painting a sobering picture of the country's nascent housing
recovery. Diane Swonk, chief economist of Mesirow Financial and a member of the
Council of Economic Advisers to the White House, gives us her analysis of the
numbers and what they show reveal about economy.

What’s your overall take on today’s numbers?

The decline of 0.6 percent is better than expected, but it’s
still a decrease and indicative of a very low level of activity. It’s
still this theme of ‘less bad is good,’ and that’s
just not enough. Remember, these sales are declining on the back of record low
mortgage rates. At the end of the day, they could have been worse, but we
should be seeing the housing market really pick up by now, instead of just this
hiccup. These levels are still more consistent with a recession rather than a

How much of a role did bad weather play in the decline?

February’s numbers were worse because the heavy
winter weather, especially in the South where the declines were the worst. People
couldn’t even get to their closings because offices were closed. So
you should see some come back there in coming months. But in general, you need
to see more jobs out there to get more sales—you need a job to be able
to afford a house.

How do you expect to see existing homes sales numbers move in the next few

We’ll see it pick up in March and April because of
better weather and the homeowner’s tax credit, but the concern is
that much of the low-hanging fruit from the tax credit is already picked, and
it won’t have as big as an impact as it did last year. Especially in
places like California where median prices are high, the $8,000 credit doesn’t
give homeowners enough of a cushion in their equity. Eight thousand dollars
doesn’t mean much once you hit a $400,000 property market.

Do you expect to see mortgage rates increase as the Fed stops buying
mortgage debt?

Demand for housing is still pretty low and so the market may
just be in a situation where it can handle the Fed’s exit without
rates increasing.

How do you think new home sales numbers will come in this week?

Those hit a record low in January, going back to when they
first started tracking these in 1963. The existing sales market is 90 percent
of the real estate market, so new homes sales are on the margins anyway. But many
of the homes that are selling now are distressed but essentially new homes. We should
see new home sales come back some because they were so exceedingly low, but it’s
hard to get momentum when you’re competing with existing homes that
are essentially new.

The downside of this is that existing home sales don’t
generate as many jobs as sales of new homes, where you have construction
activity. So we aren’t getting the usual bang for the buck from
housing gains for the broader economy.

What’s the main conclusion you’re drawing from these

They underscore just how uneven the recovery is. There’s
no V-shaped recovery out there. A little bit of silver lining that came out
today was that durable goods orders numbers were good, showing that business is
stepping up to the plate and investing. But that’s a major structural
shift—we’re used to looking to consumers and the housing
market for growth; the new reality is that the economy has become more reliant
on business investment and export, than consumption and housing. It’s
a brave new world compared to the entire post-World War II era.

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