Too soon to look for housing market bottom

John W. Schoen Senior producer • Profile • E-mail

A pick-up in sales of existing home earlier this week had some homeowners wondering if the steep housing slump may be coming to an end. But the latest data on new homes sales reported Wednesday indiciate that such optimism is premature and that this spring will likely be another washout for the residential real estate market.

“There is no clear bottom yet,” said David Blitzer, chief economist for Standard and Poor’s, which tracks home prices. “We hope it comes soon. But right now it's a hope.”

Homebuilders got fresh reminder of that on Wednesday, when the latest monthly numbers showed that sales of new homes fell in February for the fourth straight month, a 13-year low.

The Commerce Department reported that new home sales dropped 1.8 percent last month to a seasonally adjusted annual rate of 590,000 units, the slowest sales pace since February 1995, a little worse than expected. The median home prices dropped to $244,100, down 2.7 percent from the level of a year ago.

Another widely watched measure of home prices fell 10.7 percent in January compared to a year ago, according to the latest reading of S&P’s Case-Shiller index. Prices were hardest hit in Miami and Las Vegas, where the index fell nearly 20 percent. Of the 20 cities tracked by the index, 13 posted their biggest drops in two decades.

Falling prices were clearly a factor in the 2.9 percent gain in existing home sales for February in a separate report on Tuesday. That uptick had been taken by some analysts and industry officials as a sign that the housing market may be nearing a bottom.

“I think we're finally beginning to work our way through the seller’s denial segment of the market  where the sellers are holding up their prices, expecting to get numbers that were unreasonable,” said Joel Naroff, chief economist at Commerce Bancorp. “Now they're dropping. And in some places very, very sharply. That's triggering more sales.”

But falling prices are also putting a drag on the broader economy. On top of higher prices for food and gasoline, further home price declines will weigh more heavily on household finances, according to New York University economist Nouriel Roubini.

“(Falling home prices) are pushing down the value of homes and putting millions of  people underwater,” he said. “Already today, 8 million houses have negative equity. If home prices fall another 10 percent as expected, we're going to see 16 million people with negative equity. It's a big problem."

Homeowners with negative equity — with loans bigger than their house is worth — are more likely to face a foreclosure or bankruptcy that gets them out from under those loans.

That could quicken the already steep pace of foreclosures as mortgages written during the height of the lending boom reset to higher levels. More than a million of the loans are expected to reset this year, putting added pressure on homeowners and worsening the foreclosure outlook.

Those foreclosures will put more homes on the market at distressed prices and add to the glut of supply. Last month, there were some 10 months supply of unsold homes available — more than double 2005 levels. That overhang of unsold homes will further delay a sustainable housing recovery.

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