Housing Crisis: Are we at the bottom yet?

Are we at the bottom of the housing crisis yet? According to the National Association of Realtors (NAR), the answer is yes. But if you look closely at recently released data, you might not be quite convinced.

But first, let’s define what the bottom might look like. Ideally, you’d like to see the total number of existing homes sold rise. You’d like to see home prices rise (or at least stop falling) and you’d like to see the inventory of existing and new construction homes for sale fall.

So how did April 2009, the heart of the biggest home buying season of the year, stack up?

The Realtors said that the number of existing homes sold rose 2.9 percent, to a seasonally adjusted average of 4.68 million. However, the total number of existing homes sold is down 15 percent from April 2008.

What about home prices? NAR said home prices fell 15 percent from a year ago. The S&P/Case-Shiller Index revealed home prices in April for the 20 markets it covers slid 18.7 percent from a year ago. Home prices are down 32 percent over the past three years, since the market peaked in 2006.

What about the number of homes that are available for sale? According to NAR, the number of existing homes for sale shot up 8.8 percent, which it attributed to the fact that more sellers list their homes for sale at this time of year. The existing home inventory stands at just over 10 months, which means that it would take more than 10 months for all the existing homes on the market to sell at the current pace.

New construction inventory doesn’t look any better. New residential sales rose 0.3 percent (that’s three-tenths of one percent) in April, but fell 34 percent from a year ago to a seasonally-adjusted annual rate of 352,000 according to the Commerce Dept. The inventory of new construction homes for sale also stands at about 10 months. The median price of a new home fell to $209,000 from $246,000 a year ago.

What about financing? The news isn’t that much better. Interest rates shot up this week, while the number of homeowners who are at least 30-days late in paying their mortgage rose to 9.12 percent, with the share of loans entering foreclosure at 1.37, according to the Mortgage Bankers Association (MBA). Both of those numbers are at a record high.

The number of prime mortgages (given to people who had perfect credit at the time the mortgage was originated) going into foreclosure is now 24 percent of the total, a number that is rising, according to the MBA.

What’s going on there? As more Americans lose their jobs, they run through their savings, retirement funds, and any other cash they have access to in order to keep making their mortgage payments. But at some point, they run out of resources. And, their mortgages drop into default and ultimately receive a foreclosure notice.

My guess is that the number of prime loans going into default and foreclosure will continue to rise, as more people lose their jobs. Since it typically takes a few months to run through your resources, the fact that this number is rising now, several months after the U.S. unemployment rate started to rise means we’ll see even higher numbers ahead, once the national unemployment rate passes 10 percent – an event that could occur.

More unemployed Americans means less money they’ll have to spread around the economy, from restaurants to retailers. Which could mean more people will lose their jobs.

While there is an argument to be made that the housing market is perhaps deteriorating more slowly, it’s hard to make the argument that we’re at the bottom yet, much as we all wish that were true. I wish I could be more optimistic about the housing market, but I just don’t see the rebound yet.

It’s been a long cold winter – make that 2 years’ worth of winter if you count from June 12, 2007, when Bear Sterns’ hedge fund collapsed under the weight of its sub-prime mortgage portfolio, as Washington Post financial columnist Allan Sloan pointed out in a recent column.

It’s much nicer to talk about green shoots.

May 28, 2009

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