In case you missed it -- or were just plain confused -- this week saw the release of a bewildering number of housing indicators. The S&P/Case-Shiller Index, which tracks national home prices, reported a tiny gain in home prices for September -- for the fifth consecutive month of growth. Separately, the National Association of Realtors said that sales of previously owned homes were up 10 percent from September. And federal data released today showed a 6.2 percent increase in new homes sales in October. Got that?
For his part, Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog, was much less circumspect in an interview with Yahoo's Tech Ticker today: "We're not even close to a bottom in the housing market," he said.
According to Ritholtz, the housing data show an "artificial move up," because the reports are largely built on seasonally adjusted numbers and because "areas that have the most foreclosures are seeing most of the activity." People buy foreclosed-on homes and then flip them, resulting in double counting and the "illusion of activity."
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Ritholtz believes that home prices are still inflated 15 to 20%, and that sales, buoyed by government props like the first-time buyer tax credit and low interest rates, aren't reflective of the actual state of the housing market. "Until we start seeing a healthy housing market that can stand on its own, without government props, without distressed properties selling 60% off peak levels -- that's how you know the bottom is in," he said.
It's not a bad thing "to drive prices down to historic levels where it's affordable," Ritholtz said, but his best-picture scenario for housing is several years of sideways movement until improvements in wages and employment and a wider economic recovery can ground "a healthy market that can stand on its own."
Calculated Risk also chimed in on the recent round of housing data, and compared housing prices to rental rates, personal income, and real home prices.
"It appears that house prices - in general - are still too high. However prices depend on the local supply and demand factors. In many lower priced bubble areas supply has declined sharply (because of the loan modification efforts and local moratoria), and demand was very strong in Q3 from the first-time home buyer frenzy and cash flow investors...However in the mid-to-high end of the bubble areas - with significant supply and little demand - prices are still too high. And I expect further declines in those areas and probably nationwide..."
Building off of some of Caluclated Risk's charts, the Business Insider's Henry Blodget, who last month said Americans were "still delusional about home prices," seems equally bearish on housing. While the small price run-ups of the last few months may be heartening, Blodget writes, continued unemployment and the inevitable mortgage rate increase -- this week, the average 30-year rate decreased to April's record low at 4.78 percent, the lowest since 1971 -- will soon send prices tumbling again. Here's Blodget:
Houses are very affordable right now--if you have a solid job, lots of savings, and aren't deeply underwater on your old house. If and when rates begin to rise, however, this will quickly make them less affordable.
The good news is that, after what we've been through, another 10%-15% decline will feel like a walk in the park. It does seem likely that the house price decline will resume in November and December, though.