Housing Market Today

Keeping you updated on the market!
For the week of

September 13, 2010


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MARKET RECAP

Thanks to the Labor Day holiday, little housing news hit the wires this past week. But the dearth of hard data gave bloggers and pundits more time to voice their opinions.

At Housingwire.com, real estate data provider Clear Capital reported that home prices gained 5.7 percent over the three months ending in August. That would appear to be good news, but the analysts at Clear Capital were quick to note that price growth has slowed and will drop next year, possibly dropping below 2009 levels.

It's worth noting that Clear Capital's 5.7 percent gain is a national average. Real estate is local, and becoming even more so. Clear Capital noted that with the various government incentives, residential real estate nationally tended to move in the same proportions in the same direction. That's no longer the case. Today, we are seeing real estate respond more to the vagaries of local markets than to national trends. In other words, prices could weaken nationally, but that doesn't preclude local markets from stabilizing and even appreciating. After all, it takes only one outlier to skew an average. (For example, if Warren Buffett, you, and eight of your closest friends were in a room, the average net worth of each person in that room would exceed $5 billion.)

Meanwhile, over at the New York Times, various bloggers of various reputations were lamenting that markets still aren't clearing at today's prices, which means prices must continue to fall. The logic appears sound: lower prices do stimulate demand and will clear inventory. But that logic is more applicable to trade-value goods – goods that are produced to be sold. Housing is different; it has a use-value component (at least existing homes do). Most of us buy a house as a dwelling, not as good to trade. If we don't like the price when we consider selling, we're more likely to remove our house from the market, thus lowering supply, which, in turn, tends to stabilize and raise prices.

In short, no one knows where housing prices will be this time next year. We think they will correlate negatively with the unemployment rate: if the rate drops, prices will rise and vice versa.

We also think mortgage rates will correlate negatively with the unemployment rate. As the unemployment rate drops, mortgage rates will move higher. Granted, that doesn't seem to be much of a concern today, with the unemployment rate stubbornly holding at 9.6 percent, but things can change in a hurry (on one bullish employment report or one spike in the consumer price index), which is why it's worth remembering that sub-five percent 30-year fixed-rate mortgages are the anomaly, not the norm.

The Perspective from the Great White North
Sometimes it's good to get an outside perspective of things, which is what the Financial Post, a Canadian national newspaper, provided a week ago. While a pile-up of weak US economic data has turned domestic consumer and investor sentiment sour over the past few weeks, the view from north of the border is that things aren't really that bad down here.

Indeed, many money managers in Canada are taking a hard look at our markets and investing more of their money. The smart money managers (it's worth noting that Canada avoided the banking implosion that rocked the United States and Europe ) are taking their time to analyze the news. After weighing some of the disappointing data of recent weeks, including weak jobs and home sales numbers, against more positive indicators such as the latest ISM survey, they have seized the opportunity to buy assets on the cheap.

While there is no question that the US economy has stalled and growth moving forward will be modest, many Canadians are convinced that the recovery is sustainable and the chance of a double dip is low. Perhaps we should heed their business acumen and consider the opportunities that have presented themselves.