Thursday, October 26, 2006

Is the Worst Really Behind Us?

I don't know, something about these types of quotes (in reference to yesterday's data showing that the slowdown in the housing market is continuing) worries me:
WASHINGTON, October 25, 2006 - Existing-home sales eased last month, as did the number of homes available for sale – indicating the housing market is stabilizing, according to the National Association of Realtors®.

...David Lereah, NAR’s chief economist, said stabilizing sales should build confidence in the housing market. “Considering that existing-home sales are based on closed transactions, this is a lagging indicator and the worst is behind us as far as a market correction – this is likely the trough for sales."
A little patience, please. The housing market slowdown has been happening for 6 months or so. Isn't it a little soon to conclude that the worst is over?

As a comparison, suppose that you had concluded that the worst was over one year into the last major national housing market slump, in 1990. By the end of 1990 you would have seen the trajectory of house prices looking something like this:

Patience, I urge. Because if you had indeed supposed that the worst was over at the end of 1990, merely one year into that housing slump, you would have been quite mistaken. For the housing market works slowly, and its cycles are very long. The worst was not over by the end of 1990. Not even close.

It will be years, not months, before we will be able to say that "the worst is behind us" regarding the housing market.

UPDATE: If I had waited a few more minutes on this post, I could have built this morning's news into it:
Builders slash prices to sell more homes
Sales up 5.3% in September, but prices plunging at fastest rate in 36 years

WASHINGTON (MarketWatch) -- U.S. homebuilders slashed prices at the fastest pace in 36 years in September and managed to boost sales to the highest level in three months, the government said Thursday.

The government reported that sales of new homes unexpectedly rose 5.3% in September to a seasonally adjusted annual rate of 1.075 million, the most in three months and well above the 1.05 million expected by economists surveyed by MarketWatch. However, sales in June, July and August were revised down by total of 67,000 annualized, continuing a pattern of downward revisions to the originally reported data.

...Median sales prices dropped 9.7% in the past year to $217,100, the lowest price in two years. It's the largest percentage decline in median prices since December 1970. Median prices for existing single-family homes are down 2.5% in the past year, the largest decline ever recorded.

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