Call It A Comeback?

Housing has had some recent signs of health, causing a frenzy in traditional media outlets who are calling a comeback for housing, but is it too soon?

Tara Steele is the News Director at AgentGenius, a terrific real estate blog, covering real estate news, technology news and everything in between. Below are excerpts of  one of her recent posts asking the questions:  Are lowering inventory levels good or bad for housing? Are reduced sales a good sign or not? Is housing recovering, or are these just signs of life? I have posted about the shrinking inventory levels and how this is pushing up demand and prices. It’s a great question to ask. While it is a positive development that inventory is being absorbed, especially foreclosures, the lack of good inventory which is required to to fuel a recovery is an issue.

Is it time to call it a comeback?

Housing has had some recent signs of health, causing a frenzy in traditional media outlets who are calling a comeback for housing, but is it too soon? When a coma patient who has been nearly beat to death opens one eye, no doctor would call the patient recovered, rather showing signs of hope for a potential recovery some day. As housing has been beaten to a pulp and opens one eye and two or three indicators show improvement, many are desperate to cling to hope that everything is recovered, but that just is not the case, and pushing that idea that everything has recovered is unhealthy for those looking for the recovery. Let’s just say that the moment anything backslides, the overly enthusiastic commentators and their following will feel slighted.

At AG, we are not calling it a comeback, in fact, you’ll see with the positive reports coming out of housing recently, we say as much in the first few lines, so that when good news is delivered, there is a huge “but” on the delivery.

Economist, Dr. Kolko weighs in

We have noted that while some economists are allowing themselves to get worked up by tiny signs of life, Dr. Jed Kolko, Chief Economist at agrees with us that the good news should be taken as part of the whole picture, not independently as a sign of recovery.

Yesterday, the National Association of Realtors (NAR) reported that home prices have risen, but inventory is tight, explaining the lowered sales numbers.

Dr. Kolko agreed that the sales data reflects the tightening inventory, as it fell 24.4 percent year-over-year, telling AGBeat that “Although sales increased year-over-year, they’re only 35% of the way back to normal. The June sales level of 4.37m is much closer to the worst of the recession (3.77m in Nov 2008) than to its long-term normal level (5.5m).”

“The shrinking supply of foreclosed homes drives the drop in inventory and sales,” added Dr. Kolko. “The share of distressed-home sales fell from 30% one year ago to 25% in June. Sales of homes priced under $100,000 in the West – which includes lots of distressed homes — fell 36% year-over-year.”

Low inventory levels: good or bad?

Dr. Kolko notes that while inventory feels tight when compared to recent years, “it’s actually only slightly below normal levels. ‘Normal’ inventory is 2.5m, which is roughly 5-6 months of supply when sales are at their normal rate of 5.5m. Now, inventory is 2.39m, which is very near ‘normal’ but way below the elevated level of the past few years.”

Many are enthusiastic about inventory levels, but who does it benefit, and does it hurt anyone? Dr. Kolko said, “Tight inventory is good for some and bad for others. Tight inventory hurts buyers, helps sellers, and hurts real estate agents and others in the industry who depend on sales for their income.”

“Tight inventory is a necessary step on the road to recovery,” said Dr. Kolko. “As prices start to rise, buyers get impatient but sellers want to hold off. Longer-term, rising prices will encourage new construction and lift homeowners above water, both of which will bring more homes onto the market and increase inventory. But inventory has to shrink first before it expands.”