Yesterday, investors once again demonstrated how jittery they are as the Dow-Jones Industrial Average plunged 2.49 percent, the euro plummeted, options trading was unusually volatile, commodities fell, reaction to the Fed’s FOMC comments became sharply negative and Treasury yields dropped.
Quoted in the Wall Street Journal, Keith Bliss, senior vice president with Cuttone & Co., had this to say about the day’s events:
All of a sudden, bad news is pouring out from seemingly every corner of the world. People are saying, let’s take our long positions off the board and let the rest of the world digest what’s happening here.
There’s hardly a silver lining to this news, but the sole comfort I can take is that it’s summer. With many financial types on the beach, what happens in summer doesn’t always persist. The other bit of good news for my readers is that I’m no economist, and perhaps I don’t know what I’m talking about it.
But I have observed how the housing and stock markets interact for some time. What I have (not uniquely) seen is that the housing market becomes paralyzed when the stock market stumbles, especially in Manhattan.
Ironically, time was that real estate was considered safe from the vagaries of the U.S. and global economies.
I see no reason that discretionary home sellers will risk what they enduringly and maddingly see as their investments by listing them. They want certainty that buyers are out there, confident that home prices will go no lower, they won’t lose their jobs and the value of their financial assets won’t fall farther.
And as for discretionary buyers, they won’t budge without strengthening confidence that it’s okay for them to spend whatever money they have left after the paroxysms that their estates have suffered.
Also yesterday, the dependably optimistic National Association of Realtors (NAR) had the misfortune of releasing its second quarter survey, hailing firmer home prices.
Helped by the homebuyer tax credit, the NAR reported that 100 out of 155 metropolitan statistical areas (MSAs) had higher median existing single-family home prices in comparison with the second quarter of 2009, including 14 with double-digit increases; two were unchanged; and 53 metros showed price declines.
In the first quarter of this year, 91 areas had higher prices, while only 26 MSAs experienced annual price gains in the second quarter of 2009.
The national median existing single-family price was $176,900 in the second quarter, up 1.5 percent from $174,200 in the same period of 2009. Distressed homes accounted for 32 percent of second quarter sales, down from 36 percent a year ago.
Striking a rare note of caution, NAR Chief Economist Lawrence Yun observed that prices have been essentially unchanged since last year:
All year we’ve been seeing relatively flat national home prices, which appear to be supported by market fundamentals. Prices in some areas remain below replacement construction costs, so even with an elevated supply of existing homes on the market we don’t expect any consequential movement in home prices for the foreseeable future.
Very low inventory of newly built homes also will help to support home values.
The median price is influenced by the mix of homes that were sold and do not reflect pure appreciation or depreciation. The recorded home prices in many markets were significantly depressed last year because of a large percentage of distressed homes sold at discount. Now as more normal, non-distressed home sales are occurring, the median price in many areas is showing higher values.
And let’s not forget how the federal tax credit pulled the number of sales forward into April, leaving the end of the quarter relatively quiescent.
The final bit of destabilizing news about the market arrived in the Journal online early in the day. Moody’s housing economist Celia Chen was quoted as writing that the odds of a near-term double-dip recession now stand near one in four, versus odds of one in five during the spring.
Home prices could fall by another 20 percent before they stabilize in early 2012, according to her new forecast.
Put all the foregoing together along with everything I haven’t detailed here (e.g. jobs!), perhaps you’ll be as pessimistic as am I. I hope you’re not and hope even more that my analysis is, in fact, wrong. But as of now, I wouldn’t expect any sort of “normal” housing market for some time.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022