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Has the Housing Market Hit Bottom?

Samuel Staley
April 6, 2009, 8:00am

Last week, Standard and Poor's released the Case-Shiller housing price index which showed a continued drop in home prices in every one of the 20 metro areas it tracks. This isn't the whole story, however, because the National Association of Realtors reported just a few days later that new home sales were up in February.

This is good news because it suggests in some markets the back log of inventory may be hitting bottom. This may be particularly true in metro areas such as Miami, San Francisco, and Las Vegas where prices have fallen by more than 40% from their peak. The large inventory, combined with low prices, means those potential buyers with good credit histories and cash can buy up homes at a bargain.

The Realtors estimate that 45 percent of the homes being purchased are in foreclosure or in some form of financial distress. The Mortgage Bankers Association also reports an increase in mortgage activity, although 80 percent of the loan volume is refinancing at lower interest rates.

Notes David Crowe, chief economist at the National Assocation of Hombe Builders:

Crowe cautioned that certain negative factors must still be addressed, including tight credit conditions for home buyers as well as the still-rising inventory of foreclosed homes on the market.
Indicating that builders are keeping a tight rein on inventories, the number of unsold new homes on the market continued to decline for the 22nd consecutive month to 330,000 units in February.  The months’ supply also declined, to 12.2 in February, down from 12.9 in the previous month.
Regionally, new-home sales rose strongly in the two largest markets in February, with gains of 9.7 percent in the South and 6.6 percent in the West. However, sales numbers declined in the Northeast and Midwest, by 3.3 percent and 9.1 percent, respectively.

So, we're not out of the woods yet, but at least we're on a path worth following.


Samuel Staley is Research Fellow


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