People Are Buying Houses Again

Sure new home sales are 20 percent below a year ago nationally – they should be. There was definitely an overbuilding mania, leaving us with millions of houses, condos and apartments that nobody wanted. It was too late to stop building to avoid the financial disaster that overtook us with too many unqualified buyers and too many speculators commissioning the construction of new homes. The price we have paid has been huge.

The dot-com boom gave us worthless stocks. We could just burn ‘em, nothing left but the losses. Worthless houses? Losses again. Unlike the dot-com stocks, they just hang around, depressing prices and new construction and blowing up so-called “assets” based on the mortgages that financed them. Maybe we should burn ‘em.

But that was then. Now, things are starting to improve as we knew they would. With a million new family formations each year, we will eventually catch up with the excess supply. Existing home sales were up almost 4 percent in June and this time it’s not speculators. And new home sales–these are homes built in the boom that have been sitting around–were up 11 percent, one of the largest increases in recent history. The inventory of new homes is at a record low level. Still, foreclosures in California are larger than the increase in sales nationally, indicating that there will be markets such as California and Florida that will have lingering problems with excess supply and falling prices. Unfortunately, unlike stocks, we can’t move the houses to where they are demanded. There is no NYSE for houses.

The final piece of good news is that the Case-Shiller home price index actually rose in 15 of 20 major markets. More houses are selling and at higher prices, which is a clear sign that housing markets are healing, that inventories are under control in most markets and that new home construction will pick up more steam. That will help everyone.

Could the Beleaguered Housing Sector Finally Be Turning Up?

Nothing would change the overwhelmingly pervasive gloom and doom among economic forecasters, investors and policymakers more than convincing evidence that residential investment had finally hit bottom and begun to add to GDP growth for the first time since the fourth quarter of 2005. That would be wonderful news indeed.

We have seen the first sign of that highly anticipated event in the March 17 Census Bureau release on housing starts in February 2009. That report surprised all of us by showing that total privately owned housing starts that month were running at a seasonally adjusted annual rate of 583,000 units. Click here to read the full post and comment (Insights subscribers) »