Economist's Commentary: April 22, 2008
March Existing Home Sales
By Lawrence Yun, NAR Chief Economist
The latest existing home sales further point to soft, yet stable conditions. Sales in March decreased 2.0 percent. This follows an increase in February by 2.9 percent. Ever since the credit crunch in August of last year, which resulted in the virtual disappearance of subprime loan originations and precipitated the Fed to start cutting rates, home sales have been bouncing in a very narrow range of a 4.9 to 5.1 million unit sales pace (seasonally adjusted figures). The March sales of 4.93 million fit into that pattern.
Meanwhile, inventory continues to remain elevated and intense competition between home sellers and with foreclosed bank owned properties are pressuring home prices to decline. The national median home price declined 7.7 percent in March from one year ago. The decline was slightly less than the 9.2 percent fall in February, but still a sizable fall, which has a national economic implication in terms of negatively impacting overall consumer spending. (There continues to be huge local market variations in about half of the country with price increases and virtually all of the rural areas enjoying price gains.)
The Northeast region fared better than other parts of the country. Sales increased 2.2 percent while home prices rose 4.6 percent. A steep decline in prices close to 15 percent in the West region is partly due to far fewer transactions requiring jumbo loans, particularly in California. Interest rates on jumbo loans were high throughout March. The recent announcement by Fannie Mae and Freddie Mac that they will start purchasing jumbo loans in bulk should help lower interest rates on jumbo loans in upcoming months.
The full breakout of home sales statistics can be found here.
The number of homes listed for sale is high, but at least appear to have topped out. There will be some further increase through summer from normal seasonal patterns. The magnitude of the rise will depend on the degree of sales pick up. With a clear edge, buyers can negotiate hard for a good deal. At the same time, sellers must be realistic about market conditions.
Just like the weather, all real estate is local. A national weather temperature of, say 47 degrees, is not too meaningful for consumers. Likewise, today's national housing market conditions may not be reflective of your local area and neighborhood.
Mortgage rates are favorable but have not fallen in relation to the Fed funds rate cuts. The Federal Reserve needs to be very mindful of inflation not getting out of hand - because inflation can greatly hurt mortgage rates for home purchasers. Given that the Fed funds rates are already very low, the Fed, in my view, has probably already reached the point where any further rate cuts could do more harm than good. Monetary stimulus is plentiful already.
What will be more important is fiscal stimulus. A temporary homebuyer tax credit can meaningfully and quickly resolve many of the current housing market weakness. As Congress debate homebuyer tax credit, they need to be mindful that any downward overshooting of the housing market will have significant repercussions for the rest of the economy.
The current sales activity matches that of 1998 levels. From 10 years ago, we have 25 million more people and 13 million more jobs. There is a sizable pent-up housing demand. It is a matter of getting these fence-sitters back into the market. A homebuyer tax credit can do the trick. A housing market recovery will also mean an economic recovery.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
Comments? Questions? E-mail NAR Research.
NAR members, learn how you can add this commentary to your Web site, blog, or newsletter. Read more >
