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August 24, 2006
Hot And Cool Heads Comment On The Housing Data
Reflecting on yesterday's existing home sales report, Dean Baker complained that The New York Times "included no comments from people expecting a serious downturn in the market." Maybe he should have waited a day for the July new home sales report. Or maybe he should be reading the Wall Street Journal (after obtaining the required subscription), where support for the plunging view is easily found:
Data on home sales is finally revealing what all the anecdotal reports have been telling us -- that demand for housing is plunging... Brian Fabbri, BNP Paribas...
The July new home sales report essentially mirrored the existing home sales report for the same month: weaker-than-expected sales, further deterioration in months' supply, and sharply lower house price appreciation. With mortgage purchase applications turning over again after a period of stability, further declines in home sales lie ahead. -- Haseeb Ahmed, J.P. Morgan Economics
Dr. Baker is surprised that "weaker-than-expected" wasn't the expectation in the first place, and favors terms like "bubble", "plummet", and "collapse". That is somewhat less colorful, but in the same spirit, as The Big Picture's "El stinko" and "stankbox" designations. But if you are looking for the true language of the apocalypse to come, Nouriel Roubini is your man.
I, however, find myself more aligned with points of view like this (again from the Wall Street Journal):
The demand for new housing is well pass its peak and is now on a retreating trend. Nevertheless, the level of new home sales remains quite high. Unfortunately, inventories of unsold new homes are very high, revealing moderate overbuilding. Finally, home price momentum has slowed significantly as home builders are using discounts to motivate new home buyers. -- Steven A. Wood, Insight Economics
At BizzyBlog, a useful distinction was made between year-over-year growth rates and the level of activity in housing markets. Here are the pictures that I think make the point:
Sure the pace is way off the recent records, but, by historical standards, things are still proceeding at a pretty good clip. As for prices, Calculated Risk has this ...
The national median existing-home price for all housing types was $230,000 in July, up 0.9 percent from July 2005 when the median was $228,000.
The median and average sales prices [for new home sales] were down slightly. Caution should be used when analyzing monthly price changes since prices are heavily revised.
I guess that means that, when all is said and done, prices could appear softer than they do now, but the evidence does not yet reveal much in the way of plummeting or plunging.
Of course, rising inventories of unsold homes -- Barry Ritholtz has the pic -- seems unlikely to be a harbinger of a rally just 'round the corner. And I might join The Capital Spectator in concluding that "the pullback in housing is something more than a minor hiccup." But I'm an optimist, and take this, from Jim Hamilton, to heart:
In the last 42 years (a period that includes 6 economic recessions), there was only one year in which we've seen a weaker December-to-July gain. The good news is that record year was 1994, in which the economy did not go into a recession, but instead was the prototypical "soft landing" which the Fed hopes to repeat this time.
Look. There is plenty of cause for concern, and plenty of uncertainty about the outlook. But to me it seems just a bit premature to be pushing the panic button.
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