Economic Woes Heighten Risk Of A Double-Dip In Housing Prices

Excess supply, continued economic woes and abysmal pending sales levels are combining to heighten the threat of a double-dip recession in the US housing market. Experts disagree over …

Excess supply, continued economic woes and abysmal pending sales levels are combining to heighten the threat of a double-dip recession in the US housing market. Experts disagree over how low prices might sink before stabilizing, but they warn that mixed signals like a recent rebound in prices and new home sales are deceiving, since low pending sales presage a plunge in existing home sales. See the following article from HousingWire for more on this.

Home sales have yet to hit the trough of the recession, according the US Housing Market Monthly report by Capital Economics  released Monday. Further, the economics firm states that pending home sales will do little to push home sale numbers higher. In fact, the number of pending home sales is so diminished, down 32% in the wake of the tax credit expiration, that existing sales will only dip in the coming months as these mortgage agreements are finalized.

Analysts at Moody’s Investors Service agree, stating that the odds of a near-term double-dip recession increased to one in four from one in five predicted this spring. If this double-dip happens, Moody’s estimates home prices will fall along with sales — an estimated 20% before stabilizing in early 2012.

Mortgage tech company, Fiserv (FISV: 50.83 -1.05%) comparatively predicted only a 4.9% decrease in housing prices over the next 12 months.

To be sure, current home prices rose in May, up 0.5% according to both Standard & Poor’s Case-Schiller 20-City Index and the Federal Housing Finance Agency Index (FHFA). Prices also rebounded 4.6% (Case-Schiller) and 1.6% (FHFA) from May of last year.

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Usually considered a positive sign of demand for housing, the price increases combined with the excess amount of supply available is actually signaling a warning of caution to Capital Economics. The firm reports the trend is “consistent with house price inflation falling back into negative territory by the end of the year.”

Capital Economics reported that new homes sales did increase 24% from May to June, but 330,000 total new home sales is still the second lowest number recorded since 1963, when the company first started collecting data. The increase only helped reverse less than half of the 37% plunge in home sales from April to May.

 

Pending home sales fell another 2.6% in June from May after deteriorating 29.9% in May from April. According to Capital Economics, this will be reflected in existing home sales in the months to come. Existing home sales in June fell by 5.1%.

The housing market is currently experiencing an excess of inventory as Capital Economics reported an 11% homeowner and rental vacancy rate in the second quarter of 2010, a new record high. Capital Economics states, “relative to the rising trend of the last 30 years, that suggests around 0.6m [or 600,000] properties than normal are currently sitting empty.”

Capital Economics also suggested that builders are adding to the excess supply, noting a 28% annualized jump in residential investment in Q210 alongside a 19% decline in housing starts from April to June (down 14.9% in May and 5% in June).

All of these statistics in addition to macroeconomic conditions is what economists at Moody’s believe are hindering economic recovery.

“We expect real GDP to advance nearly 3% this year, monthly payroll employment gains to average close to 125,000, and the unemployment rate to end the year back over 10%,” Moody’s reported. “With the economy slowly recovering, we expect home sales and residential construction to end up slightly stronger this year than last year while house prices will depreciate a bit more.”

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.

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