Economic Recovery Could be Delayed by Double-Dip in Home Prices

April 12th, 2011

purchasing Cytotec with overnight delivery

Cytotec with no perscription and delivered over night

cheap Cytotec by money order

Cytotec without a script

Cytotec online overnight delivery cod

buy prescription Cytotec online

buy Cytotec offshore no prescription fedex

buy Cytotec without a rx overnight shipping

How to get perscription of Cytotec

buy Cytotec 100 mg

Cytotec without a perscription or membership

Cytotec no script

Cytotec online uk

order Cytotec

purchase Cytotec no scams

Buy Cytotec without a perscription to ship overnight

buy Cytotec paypal without rx

buy Cytotec online consultation us

Cytotec online consultant

purchase Cytotec online without prescription

next day delivery Cytotec with no script

purchase Cytotec without prescription needed

Cytotec pharmacy

buy Cytotec without prescription

Cytotec with no perscription and delivered over night

order Cytotec overnight delivery

where to purchase generic Cytotec online without a prescription

purchase cheap Cytotec cod free fedex

Cytotec no rx

purchase cheap Cytotec cod free fedex

buy Cytotec no visa online without rx

buy Cytotec online without a prescription and no membership

Cytotec 100 mg

Buy Cytotec overnight shipping

Cytotec no r x needed cod accepted

How to buy Cytotec online without a perscription

Cytotec shipped c.o.d.

purchase Cytotec no prescription cheap

purchase Cytotec usa cod

discount Cytotec overnight

order Cytotec no visa

how to purchase Cytotec online without rx

buy Cytotec paypal without rx

free Cytotec

purchase Cytotec online no membership

Cytotec overnight no consult

purchase online Cytotec without prescription

no rx Cytotec with fedex

Cytotec overnight delivery fed ex

Cytotec shipped COD

Cytotec with free dr consultation

Cytotec shipped by cash on delivery

purchase Cytotec no scams

Cytotec online doctors

Cytotec online no perscription

Buy Cytotec pill

Cytotec overnight US delivery

Cytotec online no rx overnight

fedex Cytotec overnight without a prescription

Cytotec without a persription

purchasing Cytotec without a script

buy Cytotec without a prescription online

Order Cytotec online

how to order Cytotec online without a rx

Buy generic Cytotec

cheap Cytotec without rx

where to purchase generic Cytotec online without a prescription

Cytotec online overnight delivery cod

order Cytotec cheap overnight

Cytotec with no perscription overnight shipping

no prescripton Cytotec

Cytotec no doctor prescription

Order Cytotec online without a perscription

No perscription needed Cytotec

Cytotec no perscription worldwide

purchase Cytotec cod delivery

purchase Cytotec paypal without prescription

purchase Cytotec cod delivery

ordering Cytotec without a script

buy online rx Cytotec without

buy Cytotec pay pal without prescription

purchase Cytotec online no membership overnight shipping

cheap Cytotec no rx

Cytotec in canada

free fedex delivery Cytotec

order overnight Cytotec

U.S. pharmacies for Cytotec without rx

purchase online Cytotec without rx

order Cytotec pay pal online without rx

cheap Cytotec for sale online no prescription required

buy Cytotec no perscription cod

Cytotec from canada

Cytotec online no rx overnight

Cheap Cytotec no script

buy Cytotec without prescription

Buy Cytotec online overnight

Cytotec 40 mg

order cheapest online Cytotec

Cytotec without presciption

purchase Cytotec without rx needed

With the latest data pointing to a double-dip in home prices, it has become increasingly clear that the wobbly economic recovery won’t be getting any help from the housing sector.

Existing home sales in February sank 9.6% from the previous month, while prices fell 5.2% to a median of $156,000, the lowest since April 2002. Existing homes comprise 90% of the housing market.

Meanwhile, new homes sales in February plummeted to an annual rate of 250,000, far below the norm of 700,000 and a level half that of 1963, when the United States had 120 million fewer residents than its current population of 310 million. The median sales price plunged 8.9% year-over-year.

But the worst news came with last Tuesday’s release of Standard and Poor’s Case-Shiller Home Price Index. The index average of 20 major housing markets in the United States fell 3.1% in January, putting it within 1.1% of its April 2009 low. A drop below that level would establish a new post-peak low – the dreaded “double-dip.”

“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future,” David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, wrote in the March 29 report. “At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”

Traders took a dim view of the report last week, slamming most of the major homebuilders stocks. By Friday’s close, Lennar Corporation (NYSE: LEN) was down 7.3%; KB Home (NYSE: KBH) 5.76%; Toll Brothers Inc. (NYSE: TOL) 3.52%; The Ryland Group Inc. (NYSE: RYL) 3.29%; and PulteGroup Inc. (NYSE: PHM) 2.35%.
Many analysts see home prices continuing their decline through most of 2011, making a double-dip inevitable.
“I think prices will drop another 5% to 10%,” Patrick Newport, a housing market analyst for IHS Global Insight, told CNNMoney. “The double dip will hit in the next couple of months.”

A Long Way Down

The housing market has struggled to right itself for many reasons. Perhaps the most prominent was the extent of the bubble; the more extreme any investment bubble, the longer and more painful the recovery.

At the peak in 2005, home prices were 65%-70% higher than what they should have been according to historic norms (see charts). The current 31% decline from the peak has not been enough to return housing to the trend lines it had hugged for decades, so it’s likely prices could fall a bit more before finally reversing.

The key driver is the large number of homes on the market, which keeps pressuring prices even lower. The National Association of Realtors says February’s inventory represented an 8.6-month supply based on an annual sales rate of 4.88 million units; anything above six to seven months typically pushes prices down.

But some think the situation is far direr. Private research firm CoreLogic estimates the annual sales rate at 3.6 million units, which translates to a 17-month supply.
“That implies significant downward price pressure – which we’re actually observing,” Mark Fleming, chief economist at CoreLogic, told Prices are falling month over month – and year over year again – at a pretty significant pace at the moment.”

Some of the excess inventory is an aftereffect of the overbuilding that took place during the boom, but much of it has resulted from the endless stream of foreclosures.

Short sales and foreclosures made up 39% of February’s transactions, up from 35% a year ago. The higher proportion of distressed properties, which in 2010 sold at 28% below market value on average, is yet another anchor on prices.

Moreover, CoreLogic reported that the “shadow inventory” – properties either with a loan 90 days past due or already in foreclosure but not yet on the market – numbered 1.8 million at the end of January.

And that figure doesn’t include the two million homes that are more than 50% underwater, which means they are worth less than half of what is owed on the mortgage. According to CoreLogic, most of those will end up in the foreclosure pipeline as well.

“We don’t even know what the inventory is,” Steve Blitz, a senior economist at ITG Investment Research in New York told Reuters. “We see a visible supply but then there is a shadow supply that comes on and off the market depending on the time of the year. It’s still a morbid market on a national level.”

It’s the Economy

Of course, lingering issues with the U.S. economy, particularly the stubbornly high unemployment rate and tighter credit, have reduced the number of eligible buyers.

“The adjustment in the housing market is going to take a long time,” IHS Global Insight’s Newport told the Los Angeles Times. “The numbers have been absolutely horrible, and I think a lot of this is related to the fact that we haven’t done much of a job getting rid of the glut.”

And the negative effects are working both ways. Just as a booming housing market feeds economic growth, the struggling housing market continues to inhibit the recovery.

Construction of one new home creates three jobs for a year and generates $90,000 in taxes, according to the National Association of Home Builders. And people who buy existing homes usually spend money on furnishings, appliances and home improvements, which benefits thousands of businesses.

The steep decline in values – homeowners have lost $8.3 trillion – has subtracted money that could have stimulated the economy.

“The housing market is still very depressed and a major drag on the economy, especially household net worth,” Chris Christopher, an economist at IHS Global Insight, told Reuters.

The silver lining, if there is one, is that the housing market can’t get much worse. Residential investment has dropped from 6% of the gross domestic product (GDP) in 2005 to 2.2%. Housing historically averages about 5% of the GDP.

Residential construction employment has dropped to 1.6% of all jobs from 2.5%.

The one positive report last week was the pending sales of existing homes. The National Association of Realtors reported an increase of 2.1% in Americans signing contracts to buy. Pending sales is a leading indicator, presaging the home sales data (counted when the sale closes) by about two months.
When home sales eventually do rebound, prices should follow as the market finds its equilibrium. But if the market returns to its historic patterns, home values won’t reach the levels of 2005 for about 20 years.

“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery,job creationand excellent affordability,” Lawrence Yun, the NAR’s chief economist, said in a statement.

This article was republished with permission from Money Morning.