Home About Archives RSS Feed

The Independent Investor: 'Bottom' Not Same As Recovery

By Bill SchmickiBerkshires Columnist
Every summer for the last three years, economists have announced that the housing market has finally bottomed. But in the same breath, they talk about a recovery they expect in the months and years ahead. I agree that the bottom is in but there is little sign of that promised recovery.

In a recent Wall Street Journal poll of 44 economists, all but three were convinced that housing has hit bottom. To back up their contention, one need only review the data in that sector over the last few months. In May, as just one example, 10 percent more existing homes were sold than in the same month last year. Builders also started on 26 percent more single-family homes that month than the depressed levels of last spring.

In June, housing starts rose 6.9 percent to a seasonally adjusted annual rate of 760,000 units, which is the highest rate since October 2008. But new permits for building homes dropped 3.7 percent and pending home sales actually decreased by 1.4 percent. In a bottoming process, however, conflicting numbers are to be expected. In an actual recovery, one should expect a consistent string of stronger data points month after month. That has failed to occur.

For the past several years, good news in the spring and summer (the traditional season for home buying) was followed by disappointing data in the fall and winter. We need to see more robust numbers throughout the year and a broadening out of this trend before a housing recovery becomes a reality.

Zillow, a research organization that measures home values, said on Tuesday that the U.S. market has turned the corner after a five-year slump. They point to the fact that home values have risen for four consecutive months. Yet, when the data is examined closely, we find that the biggest price gains are in the markets that saw the largest drops during the real estate crash. California, Arizona, Florida and Nevada have seen higher prices but from a very low base. Whereas places like St. Louis, Chicago and Philadelphia saw price declines.

It could be that the markets that saw the largest gains were simply correcting an oversold condition that was not sustainable. In other words, prices were too cheap, even under these market conditions, and buyers recognized this. If we are in a true recovery, we should see a continuation in price increases in these markets with a flattening out of prices in declining markets.

Many economists argue that this time around a declining supply of houses will bolster the real estate market's recovery. Here again, I look at the level of homes for sale with a jaundiced eye. The level of housing inventory that is being held "off market" concerns me. First, there is the large pool of foreclosed properties that the banks are holding and can't wait to get off their books.

In addition, roughly one-third of all homeowners are underwater on their mortgages. Many of these owners are hoping for a recovery in prices before selling. Finally, a substantial portion of existing home sales have been purchased for cash by buyers who intend on renting out these properties until the market turns and then selling them at a profit.

If I'm correct, that represents an awful lot of potential homes for sale that are not being counted in the nation's housing supply by those who argue that a recovery is under way. About the best that can be said for housing is, if a bottom has occurred, then the housing sector will no longer be a drag on the economy overall. It may also mean that prices will stabilize at last at a lower level, although how long it will be before prices increase is a function of how much inventory there is left to be sold.

In my opinion, it could take several more years before that existing stock of houses is sold off and another generation of homebuyers actually begins the process of bidding up home prices once again. For prices to return to their pre-crash level, we would need to see the economy come roaring back and the jobless rate drop precipitously.

In the meantime, if you are in the market for a place to live, focus on the attractions of owning rather than renting a home to live in rather than as an investment. Unless something changes radically in this country, it could take a long time before you actually see a recovery in housing.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.


     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
North Adams Regional Reopens With Ribbon-Cutting Celebration
Clarksburg Sees Race for Select Board Seat
Crosby/Conte Statement of Interest Gets OK From Council
WCMA: 'Cracking the Code on Numerology'
BCC Wins Grant for New Automatic External Defibrillator
Clark Art Screens 'Adaptation'
Drury High School to Host End-of-Year Showcase
Clarksburg Gets 3 Years of Free Cash Certified
Pittsfield CPA Committee Funds Half of FY24 Requests
MCLA Men's Lacrosse Falls in League Opener
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (184)
Archives:
March 2024 (6)
March 2023 (2)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Economy Energy Metals Jobs Europe Employment Euro Currency Bailout Crisis Congress Debt Deficit Interest Rates Retirement Recession Banking Stocks Pullback Greece Stimulus Markets Oil Rally Fiscal Cliff Japan Election Debt Ceiling Europe Selloff Banks Federal Reserve Commodities Stock Market Taxes
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
The Retired Investor: Immigrants Getting Bad Rap on the Economic Front
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising