The Wood and Fiber Supply Chain Experts
The Housing Market
From the April 2009 Forest2Mill newsletter.
Many of us are tired of rehashing news about the housing industry, as
it has been primarily negative for much of the last 18 months and shows few signs of emerging from
the pit. Because housing statistics are announced by multiple organizations—the Census Bureau, the
National Association of Realtors, the National Association of Home Builders and Case-Shiller—and
sprinkled throughout the month, however, we have decided to continue to run this monthly entry on
housing. We find that aggregating the data in one place gives us a better overview of the market.
We hope it does the same for you.
Affordability is one of the big stories this month. The National Association of Realtors’
affordability index increased to a record amount in February, 47 percent higher than the July 2008
low. Mortgage rates are also dropping; on March 31, 2009, Bankrate quoted the overnight average
30-year fixed rate mortgage at 4.89 percent. This drop has been precipitated by the federal
government’s purchase of mortgage-backed assets, which to date tops $335 billion. The Fed plans to
continue purchasing these instruments, spending at least $500 billion in total, and this should
keep interest rates at the 4.5 to 5.5 percent range throughout the year. An $8,000 tax incentive
for first-time home buyers will be an important factor for 2009 as well (the incentives expire at
the end of December).
In the wake of these events, we find the first good news for the housing industry in a long
time. According to the National Association of Realtors, sales of existing homes increased 5.1
percent from January to February. Months of inventory remained stable at 9.7 months. The U.S.
Census Bureau announced that sales of new homes grew by 4.7 percent in February; new home inventory
currently stands at 12.2 months, down from 12.9 months in January.
Pending home sales statistics also improved in February—the National Association of Realtors’
pending home sales index (PHSI) rose 2.1 percent to 82.1 in February, up from 80.4 in January.
Because pending sales are a leading indicator, more good news for the housing industry may be
ahead. Supporting this advance, the Commerce Department reported that construction of new homes and
apartments jumped 22.2% from January, exceeding the expectations of economists.
While homes are more affordable now than they have been since 1970, the Case-Shiller home
price index indicates that housing prices fell 19 percent in January, year over year. Due to a
surge in foreclosures in Febraruay (29.9 percent higher than the same month in 2008) it is likely
that home prices have yet to hit bottom.
A final note about unemployment figures, which continue to look bleak. Unemployment is a
lagging economic indicator, meaning the end of the recession will need to be behind us before we
see a turnaround in the jobless situation. This means that additional Americans will lose their
homes (adding more inventory to the market) and that fear of losing a job will cause some to sit on
the sidelines until they are more secure. For these reasons, we still think a long-term improvement
in housing will not occur until the end of 2009 or the beginning of 2010.