Tuesday, June 29, 2010

What To Make Of The Current Slump In Housing?

The latest housing numbers released are reminders that long term recoveries don't simply move in one direction. The Commerce Department recently announced that new home sales plunged by 33% in May of 2010. That in turn had an adverse effect on the US stock market which set off negative predictions from some doomsayers. The report came just a day after the NAR (National Association of Realtors) announced that sales of existing homes had also fallen in May by 2.2%.

What do I make of all these negative numbers? To begin with consider this: The monthly sales decline didn't occur in a vacuum. They were the result of the dead line which was imposed by the Federal Government for signing contracts to qualify for the housing tax credits. Thousands of people rushed to move their home purchases forward before the April 30 deadlines for the $8,000 and $6,500 tax credits. That was also reflected in March and Aprils higher sales totals for new and existing homes. Lower numbers for May and June were predicted just not to the extent that was experienced.

In my opinion it was cause and effect for the months of March, April, May and June who's numbers will be out soon. Yet the significant forces for housing are at work in the our economy, consumer confidence is gaining and we have record low interest rates. Looking at the bigger picture even with the huge decline home resales in May were nearly 20% higher than 2009. Average prices in 16 of the top 20 markets were also higher. Almost two thirds of the top 100 metropolitan markets are experiencing positive appreciation. That is a huge contrast with 2009 when all 100 were negative.

All this to say don't get confused by four months worth of sales numbers. Look at longer-term patterns and you'll see that the trend is positive, even if it pulls back every now and then.

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