In US Housing Turning, Does Anyone Trust?

We have been very consistent with our message on housing, which has implications for the consumer. Since the beginning of the year we have said, the housing market will bottom in 2Q09. The last five data points on housing could actually prove us wrong; it may actually have happened in 1Q09!

Today, the Commerce Department reported that new home sales nationwide rebounded by 4.7% in February after hitting a record low in January (the government also revised January's sales pace for new homes to 322,000 units, up from the 309,000). The February sales pace was still down 41.1% compared with February 2008.

We also saw a small improvement in Inventories of unsold homes as they fell by 2.9% to 330,000 in February; a 12.2 month supply given the current pace of sales. Last February, there was a 9.2-month supply of unsold homes. Given the potential for revisions, these government statistics require 3-5 months of data to establish trend line sales.

This statistic alone is not an affirmation of the bottom, so let’s look at the environment for signs of a potential recovery in housing:
(1) Overall affordability measures are the best in years
(2) Mortgage rates are at generational lows
(3) Mortgage applications are up significantly
(4) Significant government incentives
(5) Homebuilders are up significantly in the past two months
(6) Lower home prices

The last piece of the housing puzzle will be price. When consumers feel that the value of home prices have stopped going down, the incentive to buy improves dramatically. We believe the inflection point on price, as measured by the Case/Shiller index, will occur in 2Q09.

Howard Penney
Managing Director

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