Housing Doom

In this evening’s Washington Post, Senator Johnny Isakson, (R-Ga) defends the proposed $7,000 tax credit:

I take exception to the assertion in the April 7 editorial "A Pro-Foreclosure Bill" that the $7,000 tax credit in the Senate housing measure will encourage home foreclosures.

I was in the real estate business for 33 years, and, believe me, no one wants a foreclosure. The banks know that it is an expensive, lengthy process.

Those living in that home certainly don’t want to vacate the home or have a foreclosure on their credit report.

 

The $7,000 tax credit for anyone who purchases a foreclosed home within a year of the proposal’s enactment will inspire qualified buyers to get off the sidelines and into the market. It will allow us to replace loan defaults with good mortgages, which will stabilize housing prices for all homeowners. It worked in 1975 when Congress passed a tax credit for home buyers, and it will work again today.

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Pending home sales numbers released yesterday by the National Association of Realtors were at their lowest level since the NAR started reporting these numbers in 2001:

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in February, slipped 1.9 percent to 84.6 from an upwardly revised reading of 86.2 in January, and was 21.4 percent lower than the February 2007 index of 107.6.  “The slip in pending home sales implies we’re not out of the woods yet, though an era of successive deep sales declines appears to be over,” Yun said.

When you check the graph, that "slip" looks remarkably like a "slide".

As for Yun’s assessment that the "deep sales declines appear to be over", I believe Joseph Brusuelas, the chief U.S. economist at IDEAglobal has a better handle on it:

Although the data in the housing sector over the past few months gave the impression of a bottoming out of the market on the back of reduced rates for conforming loans and price declines just about across the board, we have been making the case that calls of a market bottom are premature. The February data not only confirms that, but when one takes into account the coming wave of foreclosures, supply will continue to increase and prices will continue to decline throughout the remainder of the year and well into 2009. That will serve as a rational deterrent from individuals re-entering the market in any substantial fashion in the short run.

Yun however, always willing to be a voice for the irrational, stated in yesterday’s NAR news release:

The market will come into clearer focus this summer.  Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure. We’re looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets.  The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.”

It is far more likely that home sales will continue in the pattern we have come to know so well— the market will see month-to-month increases over the next few months as sales tend to pick up in the spring.  Typically however, we see a decline in home sales in the second half of the year, and there is nothing to indicate that this year is likely to be any different. It is also likely that tight lending, massive inventory, and lack of buyer confidence will continue to put pressure on sales, meaning that large year-over-year declines will continue.

As for this comment from Yun:

The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.

It brings to mind a line in the 1954 movie White Christmas.  In response to an odd comment by Danny Kaye, Bing Cosby said, "When I figure out what that means, I’ll come up with a crushing reply."

If I figure it out, I’ll let you know.