THE OUTLOOK FOR HOUSING IS STILL DISMAL

The growing optimism on housing is not justified. Not only is the recent data disappointing, but the overhang of shadow inventories threatens to keep the housing market depressed for some time to come. We’ll begin with a look at the data. Existing home sales were down 2.6% in March, the second straight monthly decline. Sales remain depressed, and are still 37% below the peak during the boom. The purchase index for the latest reported week was down 11%, and is down 15% from a year earlier. New housing starts dropped for the second consecutive month to a paltry 654,000. It topped out at 2,273,000 in January 2006. The NAHB housing index for April dropped back to its early January level. It remains at 25, compared to a peak reading of 70. The latest Case/Shiller report show year-over-year national average price declines of 4% To find anything encouraging in these numbers is quite a stretch. In addition to the data already reported, it is difficult to be optimistic about the period ahead. Although the bulls talk a great deal about the decline in inventories of homes for sale, keep in mind that the official inventory numbers include only homes that are now on the market, and ignores the importance of the so-called “shadow inventories” that loom over the industry like the sword of Damocles. The shadow inventories include houses that are not now on the market, but are either delinquent on mortgage payments, in default, owned by banks or are in some stage of the foreclosure process. Estimates of the number of houses in this category vary anywhere between 2 million and 10 million. (more)