We are well into 2Q09 and the news is clear: the housing market is testing a bottom. Alongside our call on consumer confidence, the good news on housing is behind us. The supply of new homes coming on the market and the bottleneck in lending capacity suggest we will begin to see the trends peak sequentially as we head into 3Q09.
Today, the National Association of Realtors reported that existing home sales rose by 2.9% to a 4.68 million annual rate from 4.55 million in March. This represents an improvement from the March figures in which sales fell by 3.0% to 4.57 million.
Increased affordability was the key driver to the better that expected performance; about 45% of the 4.68 million sales in April were foreclosures and short sales. The pace of improvement would be even better if it were not for the tighter mortgage lending standards.
The real problem for housing now remains inventory. Demand and underwriting constraints are keeping inventories of unsold homes at historically high levels. As reported today, inventories of previously owned homes jumped 8.8% at the end of April to 3.97 million. Given the current pace of home sales this represents a 10.2-month supply, compared to 9.6 in March.
As we said yesterday, this thesis is also being played out in the Case-Shiller home-price index where there was a slight month-to-month acceleration in the decline of home prices. Unfortunately, that data point is somewhat stale (it's a March number).
At the beginning of this year we put in print our expectation that the rate of decline in home prices would decelerate in Q209. As we continue to search for a bottom it is important to remember that "less bad" is different from "good". The good news for the economy in this data does not represent good news for home sellers in the near future, not yet.
Howard Penney
Managing Director
