Housing is a mess: anecdotal & statistical evidence
I know, I know. After reading the title of this post, "Housing is a mess: anecdotal & statistical evidence" you're probably saying "In other breaking news, grass is green and the sky is blue." We all know that housing is a mess, but some people are still a lot more optimistic about the state of the U.S. housing market than they should be.
One newsletter that I subscribe to "The Complete Investor" (probably not for long), just this week said:
"For example, we have mentioned for some time that the housing market has been showing signs of improvement. This morning the Wall Street Journal finally acknowledged on page C1 that mortgage applications have sharply risen in recent weeks. They are well above their 10-year average. In addition, houses are more affordable than they ever have been. Given the government's willingness to buy Fannie Mae and Freddie Mac's debt, mortgage rates will probably fall further and housing affordability will jump. Housing may again become a source of funds and growth in an economy starved for both."
This is complete nonsense.
I will dispute this statement by starting with some anecdotal evidence describing how bad the market has gotten. I live in the Northeastern U.S., close enough to Wall Street that the massive layoffs that are happening are starting to take their toll on home prices. Flash back several months. A really annoying, pompous guy down the block from me decided to sell his house and move to a snootier area because in his words "this neighborhood is too diverse" for his taste (I heard this through the grapevine...but it is totally believable that he said it).
At the time I thought to myself, sweet the housing market is a mess, this tool is going to get creamed when he tries to sell for no good reason (of course, rooting for a bad comp is like cutting off my nose to spite my face, but that's just how I am). Of course Mr. Snob ends up getting top dollar for his home...just over $700,000! I was annoyed that he didn't get pummeled, but glad for the nice comp.
Flash forward to today. Another one of my neighbors, a great guy and one of my best friends, ended up losing his his job at a hedge fund. He has to move to another state for a new job and has to sell his house here. He lists his home for something like $650,000. Only a few short months after Mr. Snob got top dollar for his home, my friend ends up being forced to sell his for $530,000. A whopping $120,000 below its initial asking price.
So what did we learn from this tale, other than not surprisingly scumbags get rewarded and good guys get screwed? The housing market is getting worse, not better. I used real numbers to illustrate how dramatic the fall in home prices has been over the past several months alone. This anecdotal evidence jibes with the numbers that the National Association of Realtors published this morning.
U.S. Economy: Housing Prices Collapse at Near-Depression Pace
Sales of single-family houses in the U.S. dropped 7.6% last month, the most in two decades. As if the slowing pace of sales wasn't bad enough, home values are falling even faster. The NAR reported a 13% drop in median resale prices in November. This is the largest drop ever recorded. It started keeping records on this data in 1968 and many are estimating that this is the largest drop in home prices since the 1930s.
This quote from the lead economist at Global Insight, a firm that I have a tremendous amount of respect for (unlike the NAR) says it all “Housing is still in a freefall.”
I don't expect things to get better, or even stabilize until late 2009 at the earliest. That doesn't mean that things won't eventually get better. They will. Not only will this mess eventually come to an end, but the stock market will bottom several months before the economy eventually bottoms out. I have been slowly and steadily buying stock in industry-leading companies that have low debt, pay solid dividends, and which I believe are amazing bargains at this level. I intend to continue dollar cost averaging into rock solid companies throughout 2009.