Housing Market May Be Stabilizing

I can't decide if I'm skeptical or cautiously optimistic. But recent results suggest that the Nation's housing market may be stabilizing. Here's a summary:

1. Housing starts for June were up 4% (on a seasonally adjusted basis) compared to May. That's for all housing types; for single family homes, the one-month increase was 14%.

Housing starts have risen in each of the last two months. The data series are clearly volatile, however, so it's too early to announce a recovery. And if housing starts have in fact begun to recover, they’re starting from a very low level. The annualized rate of starts for June was 582,000 units. Before the crisis began, the rate had fallen below 800,000 units only once in the 45-year history of the data series.

Note: In an earlier blog entry, I mentioned that housing starts historically have been an important driver of overall economic activity. So stabilization in this sector would be encouraging news for the broader economy.

2. Sales of new single family homes for June were up 11% (on a seasonally adjusted basis) compared to May. That's the largest percentage increase in the last eight years. Sales have risen in each of the last three months, and are now 16% above their March lows.

Again, some historical perspective seems important here. The seasonally adjusted annual rate of sales for March was 332,000 units – a record low. The June rate of 384,000 units was nothing to shout about either. Before the crisis began, sales hadn’t been that slow since the 1981-82 recession.

Because sales are at such depressed levels, percentage increases can be misleading. June’s 11% improvement was an eight-year record for percentage increases, but the absolute increase in sales was a modest 38,000 units (on an annualized basis). Over the six-year period represented in the chart above, there were 14 months where sales increased by more than that.

3. Existing home prices for May were up 0.5% compared to April. That’s hardly worth mentioning on its own, but it’s the first increase in almost three years, following a cumulative decline of 32% from the peak.

The bigger news is that prices rose in 14 of the 20 markets represented by the Case Shiller indices. So May’s first hint of price stabilization is broad-based, and not simply the result of large increases in a few markets.

4. Existing home sales for June were up 3.6% (on a seasonally adjusted basis) compared to May. Monthly sales of existing homes have now increased for three months in a row.


The volatility of this series should encourage caution when extrapolating the last few months worth of data. Keep in mind, too, that until May, prices of existing homes had fallen for 32 months in a row. So while sales volumes may have stabilized, the stability has been fostered by continuous price reductions. It will be difficult to argue that the market for existing homes has stabilized until prices stabilize as well.

On the whole, it seems a little early to announce an end to the housing market downturn. Housing starts and new home sales may well have stabilized. But the tenuous stability in the market for existing homes has been paid for by continuous price reductions. There’s a good chance that demand is still falling in that segment of the market. We’ll want to see at least a few months of broad-based price stability before proclaiming that the housing market has finally bottomed.