SeekerBlog

The best source I know for accurate perspective on housing is Calculated RIsk. This post is a good resource for examining how we might recognize the housing bottom. Follow the links to the supporting data.

Earlier today I posted some graphs of new home sales, inventory and months of supply.

A few key points:

• Please do not confuse a bottom in new home sales with a bottom in existing home prices. Please see: Housing: Two Bottoms
• New home sales numbers are heavily revised and there is a large margin of error. Regarding the sales for February, the Census Bureau reported:
  

  This is 4.7 percent (±18.3%) above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

• The “rebound” in February was very small, and this is the worst February since the Census Bureau started tracking new home sales in 1963.

  Click on graph for larger image in new window.

  This graph shows the February “rebound”.

  You have to look closely – this is an eyesight test – and you will see the increase in sales (if you expand the graph).

  Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).

• Still, I believe there is a good chance new home sales will bottom in 2009. See Looking for the Sun. Because the data is heavily revised, we won’t know until many months after the bottom occurs. Also, as Dr. Yellen noted earlier, we need to distinguish between growth rates and levels. Any bottom would be at a very grim level, and any recovery would probably be very sluggish because of the huge overhang of existing homes (especially distressed homes). It is theoretically possible for new home sales to go to zero (very unlikely), and it is also possible that January was the bottom. We just don’t know …
• <snip>
• Finally, even though some signs of a bottom might emerge (housing starts, new home sales, auto sales), it is worth repeating that any recovery will probably be very sluggish. Here are a few key reasons: house prices are still too high, there is too much housing inventory (especially distressed properties), households have too much debt and need to improve their balance sheets, the recession is global, and the Obama administration has chosen a less than optimal (and very expensive) approach to fixing the financial system.

From a related post, CR shows the latest new home months of inventory, currently at 12.2 months compared to normal of 6 to 8 months.

There were 12.2 months of supply in February – just below the al time record of 12.9 months of supply set in January.

On March 23, Calculated Risk summarized what to look for:

I think the keys to watch for the housing market are declining inventory levels, a bottom in new home sales, and the gap between new and existing home sales closing.