Housing Data Paints Conflicting Picture

Harvard University’s Joint Center for Housing Studies just released a new report entitled, “The State of the Nation’s Housing 2009.” [By the way, the report is incredibly informative, and I would strongly encourage everyone to give it at least a quick skim]. The conclusion of the study’s authors can be understood as follows: “Despite unprecedented federal efforts to jumpstart the economy and help homeowners keep up with their mortgage payments, home prices continued to fall and foreclosures continued to mount in most areas through the first quarter of 2009.”

The report further points out that “By all measures but homebuyer affordability, housing market conditions deteriorated further in 2008. Housing starts were down by more than 30 percent for the year and more than 50 percent from the 2005 level…Reported new home sales also showed a record-breaking plunge of more than 60 percent from the 2005 level…The seasonally adjusted supply hit a record 12.4 months in January 2009.”

The prognosis for the future is uncertain: “With prices down by double digits, interest rates moderating, and reasons to believe that pent-up demand is building, the prospects for a recovery have improved…Still, clear signs of a recovery have yet to emerge, and job losses and the steady stream of foreclosures are keeping many markets under pressure.”

Last week also witnessed the monthly release of the oft-cited Case Shiller index, which registered a decline of “only” 18.1%, compared to a year earlier. Because of delusion and/or blind optimism, analysts interpreted this as a positive development. To be fair, the decline was better than both economists’ forecasts and last month’s reading. Robert Shiller, whose name is attached to the index, suggested that “Home prices are going to level off — they’re not going to keep falling.” He added that it’s “hard to predict” and “I am not optimistic that we’re going to see any sharp rebound.”

Some analysts are taking a more objective/cautious approach to predicting housing prices, and are inclined to see slight month-to-month changes are mere noise. I personally fall into this camp, as I don’t consider a decline of 18.1% a material improvement from an 18.6% decline. In addition, there are inconsistencies in the way that data is collected which have a confounding effect on median numbers. For example, “A house that sold for $600,000 during the boom and $400,000 in foreclosure will be recorded by the NAR as a $400,000 sale, lifting the national median but suggesting no real improvement in housing.” Not to mention the vast regional disparities that are masked by national numbers.

In short, it’s probably wise to avoid to reading too much into both the forecasts as well as the underlying data upon which the forecasts are built. It’s cliche to point out that the housing market is inherently unpredictable, but in the current environment, this cliche is especially worth repeating.