Down in the Dumps

Down in the Dumps

Unless you've been living under a rock for the past, oh say 18 months, you might have heard that the housing market has seen better days. Recently, though, opinions have surfaced that it may have finally hit rock bottom and some signs of improvement should be coming within months. For example, new and existing home sales, while still extremely weak, have flattened out and housing inventories haven't grown significantly larger in recent weeks. In news this week, the pending home sales index actually increased 5.3 percent in June and reached its highest level since last fall. On the surface, it was generally a positive report. However, a considerable portion of these contracts can likely be attributed to sales of foreclosed homes that are contributing to the supply glut in numerous markets.

And even still, there are ominous rumblings that inventories could face further renewed upward pressure. According to this article (subscription required), 2007-vintage mortgages are going bad at a faster clip than those originated back in 2006. Needless to say, this will remain a serious headwind to stabilization, much less recovery, for both the housing and credit markets. Indeed, the current housing market freefall is already rivaling what occurred during the dreary early 1980s recession and has spelled doom (or near-doom) for several banks and other financial entities. The correction has been much more abrupt this time around. Back then, the peak to trough movement in new housing starts took over 4 years (1978 to 1982) to fully play out compared to less than 3 years (January 2006 through June 2008, assuming we're close to a trough). Does this mean the broader housing market will rebound faster this time? That is a hard one to pin down, but one thing is for certain it will be a while until one can call it a seller's market again.

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