How To Get Home

Existing homes sales in most states declined from year-ago levels in the 4th quarter of 2006. No newsflash there. Prices dipped slightly as more sellers were willing to negotiate on price. Again, everyone is clear on what has happened. What is less than clear is the outlook for 2007.

National Association of Realtors (NAR) Chief Economist David Lereah has been very positive the last few months about the outlook for housing. To be fair, any economist has a tough job with lots of critics ready to tell them how wrong they are each day. But there is no economist out there catching more heat for their forecasts than NAR’s Lereah. Trying to call the bottom of the housing market is both pointless and nearly impossible to do. To say that Mr. Lereah has been a little off on his timing would be accurate, more accurate than his forecasts. Again, he has a tough job, but I think there is a difference between cheerleading and spreading good news that is accurate.

Instead of trying to tell everyone that everything is great and the worst is over, talk about the facts that are out and less about the future. My favorite Lereah quote is “There is still some bad news, but the bad news is getting better.”

Almost everyone agrees that it is going to take some time to work through the current inventory of homes for sale on the market now. How long is unclear as is what will happen with prices. A slight correction is a good thing for long-term growth.

THE FOLLOWING IS NOT CHEERLEADING:

Wholesale prices fell in January by the largest amount in three months. Helping by retreating energy costs, lower prices at the producer’s level leads to less inflation. In his semi-annual speech to Congress this week, Federal Reserve Chairman Ben Bernanke said that the central bank believed inflation pressures would gradually recede over the coming two years as the economy expands at a moderate pace.

Steady as she goes for the economy is exactly what the housing sector wants. Moderate growth means less inflation, less inflation means lower mortgage rates. The Commerce Dept reported Friday that construction of new homes plunged by 14.3% in January. That drop put the seasonally adjusted rate at 1.408 million units, the lowest level in 10 years. Less new supply will help the market work through the existing excessive inventory.

Lower mortgage rates, less new supply of homes, and steady job growth will help the housing sector bounce back. How long it takes is anybody’s guess.