No one can tell you where it is.
Alarm bells won’t sound when we get there.
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In truth, it is anybody’s guess.
We have innumerable economic barometers to help us figure out what's going on with the economy. But the indicator that has seemed to preoccupy most economic observers is the housing sector.
To this point, popular opinion points to the collapse in housing market as the main culprit that triggered the decline. Most analysts believe that its rebound that will signal our recovery.
As a consequence of this fixation, our recovery efforts, including countless billions in public spending, have been focused on reinvigorating the housing market.
Despite these Herculean labors and the billions already spent, no one can yet tell us if and when the housing market will reach the bottom or if we’re even close.
It’s like trying to see your feet in murky waters. The more you try, the less certain you are of what you are seeing.
Making a U-Turn
In the meantime, purchases of new homes in the U.S. rose in April for the second time in three months as lower prices and cheaper financing appeared to temporarily stabilize demand.
Near record-low mortgage rates, bargain pricing and tax credits for first-time buyers seem to be putting a floor under purchases after almost four years of declines. But as a result of rising unemployment and tight credit, it’s still unclear whether sales will continue their rebound in coming months.
Along with the sale of existing homes, economists are closely monitoring new home sales.
At the end of April, new home sales were down 34 percent from a year earlier. Overall, new home sales are down 76 percent from their peak in July 2005. They reached their lowest ebb last January.
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As April came to a close, the nation’s builders had 297,000 houses on the market, down 4.2 percent from March and the fewest since May 2001. At the current pace, it would take about 10.1 months to dispose of the present new home stock.
This record low rate of turnover in new homes in conjunction with tightened credit standards is continuing to hinder growth in this sector of the housing market. Until this excess inventory of new houses is significantly thinned, the new housing sector will continue to founder.
The Federal Reserve’s mortgage bond purchases from Fannie Mae and Freddie Mac have helped free up cash for the federally controlled companies to buy more loans from lenders and for the lenders in turn to make additional loans to homebuyers.
More Attractive Loans Not the Answer
Although the Fed has thrown its considerable weight into supporting the housing market, the recent upswing in 30-year fixed rate mortgages hasn’t helped.
In a sign that the Federal Reserve’s plan to lower the cost of homes loans may have lost some of its momentum, fixed mortgage rates for 30-year U.S. home loans climbed. The average rate for a 30-year loan elevated to 4.91 percent from 4.82 percent a week earlier. At the beginning of January the rate was 5.1 percent.
Not surprisingly, the jump in fixed-rate mortgages also caused applications for refinancing to slump.
Reports from the National Assn. of Realtors show that existing-home sales increased 2.9 percent, to an annual rate of 4.68 million in April, up from 4.55 million in March. Most analysts think this spike in existing sales is being driven by bargain hunters who have been brought out by the record foreclosure rate.
During the first quarter of 2009, the average price of a U.S. home fell 7.1 percent. This was measurably less than the 8.3 percent price drop during the fourth-quarter of 2008, the largest on record. While the dropoff has slowed, housing sector analysts are still unable to project a real floor in pricing.
The one-time $8,000 federal tax credit for first-time homebuyers has sparked some renewed interest. But rising unemployment, especially among potential buyers between the ages of 25 and 45, has prevented the program gaining significant market traction.
Anecdotally, analysts say they are waiting for those individuals or families entering the housing market who are looking to upgrade from their present homes rather than the growing number who are being forced to exit the market because of their weakened economic circumstances.
Even though there is no real measure to ascertain when these buyers have re-entered the market, most economists seem to believe that their re-emergence will be a true gauge of our proximity to the bottom.
Until then, we’ll just have to squint and hope.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
