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Unimpressive June numbers may contain hope.
Several important reports were released this week that have been used to take the 'pulse' of the housing industry.
In all, the reports read as many expected: housing weakness continues to sweep the nation. The Fed’s Beige Book (July 25) reports that “most districts said that residential construction and real estate activity continued to decline.” The Commerce Department reported that new single-family home sales fell 6.6 percent, the sharpest drop since January. The National Association of Realtors (NAR) reported that existing home sales fell by 3.8 percent in June (to a seasonally adjusted annual rate of 5.75 million units).
So, still don’t see the sun?
That same NAR report also included this fact: it included the “first price gain in 11 months“ (source: Seattle Times). While experts expect further price correction, this could be a good sign that things are starting to work themselves out. To be sure, inventory still needs to be drastically reduced, but consumer confidence in home prices will result in more sales…the public needs to see prices stop falling (and thus the catch: the public needs to see prices stop falling…but prices need to be low enough for this to happen. Right now experts just don’t think prices are low enough to start a recovery). While some private economists do not agree, “Fed Chairman Ben Bernanke told Congress last week that he expected housing to be a less-severe drag on growth in the coming months.”
Furthermore, the Fed’s Beige Book notes that “economic activity continued to expand in June and early July,” even with the apparent housing troubles. It also points out that, even though most housing markets were down overall, “many districts…noted increased activity in some individual market locales or segments.” Also, “commercial construction and real estate markets were generally more active than during the previous reporting period.” Nearly every district at least reported ”small gains,” with many describing their commercial markets as “solid” or “robust” (Richmond, VA and Dallas, TX specifically). So, there may be a housing slowdown, but the economy is still chugging along, and housing weakness has not spilled over to the commercial sector. In fact, housing is not even down as a whole: specific niches and locations are sidestepping the housing pitfalls.
Lastly, the same Commerce Department report that noted the 6.6 percent fall in new home sales also pointed out that “the South saw an increase in sales, a gain of 7.6 percent” (source: AJC). This report essentially backs up the claim made in the previous paragraph: not all segments of the market are experiencing the same housing ’squeeze’. This increase in sales in the South is especially notable considering the situation in Florida at the moment.
The moral of the story is this: we’re definitely in a serious recession, perhaps one of the largest housing corrections in our nation’s history…but that doesn’t mean that things are all bad, and it certainly doesn’t mean that we aren’t staging for a comeback. People will always need homes, and there will always be builders to build them.
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