Mixed Housing Numbers

There were some mixed housing numbers released today. The NAR says the resale of existing homes increased by 12.3 percent from November to December. However, the overall sale of homes in 2010 was down 4.8 percent from 2009 and was the lowest year of sales since 1997.

At the same time, the median sales price for a previously owned home ended 2010 at $168,800, which is 1% lower than 2009. Yet, on a more positive note, the number of existing homes on the market dropped 4.2% in December from an 9.5-month supply in November to a 8.1-month supply of homes.

Still, there are serious concerns that the shadow inventory of homes—those not listed as a part of the housing supply, but are likely to hit the market in the coming months and years—is growing. According to a Standard and Poor’s report, the total supply of homes as of the third quarter of 2010 was 44 months—a 25 percent increase from the start of last year. As I noted on this blog back in November, Fitch believes the shadow inventory is about 40 months of supply

CNN Money cites Dian Westerback, an author of the S&P report, as saying “The problem is you have all these properties coming down the pipeline that are nearly certain to hit the market. That’s going to be a negative for the supply-demand equation.” She also says the biggest contributor to the growing shadow inventory is the delay in foreclosures. And the recent robo-signing scandal is certain to make that slow going foreclosure problem worse.

But on the upside, the CNN Money article reports, it looks like mortgage modifications—a big source of shadow inventory supply since some 85 percent of modified mortgages wound up back in default two years ago and getting foreclosed on anyway—are getting more stable, with the re-default rate now around 50 percent.

I also wrote about this last November at The Corner:

The focus so far has been on using government programs to “fix” the housing market. But whether it’s the modification plan (HAMP), the refinancing plan (HARP), the First-time Homebuyers Tax Credit, or Treasury’s mortgage-backed securities program, prices are still low and there are still significant housing problems.

The tax credit only temporarily boosted sales. HAMP has only delayed some foreclosures; over half of its modifications have failed. Combined, these programs have boosted the so-called “shadow inventory” for homes in America — basically, the homes that should be for sale on the market today and would be if not for a government program or foreclosure procedural backlog.

The problem is that when this inventory of homes eventually gets put up for sale, it will boost supply and put downward pressure on housing prices. Everyone who is buying a home today might be overpaying, since the market has not been allowed to find its true bottom.

Hat Tip on the data: WSJ.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

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