No Spring Thaw for Housing

No Spring Thaw for Housing

Maybe you guessed it, but now it's official: The housing market has not hit bottom. Poor home sales in cold-and-quiet February may be excusable; but in March, April, and May, they are a sure sign of distress. The latest numbers indicate that the spring of 2007 will go down as one of the worst real estate seasons in years.

March, April, and May are traditionally the strongest months for home sales.

But this year, the usual throngs of spring buyers just aren't there. On May 1, the National Association of Realtors reported that home sales closed in April will remain soft, with some drag possible into May. The NAR's Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, dropped 10.5% from March, 2006, and 4.9% from February, 2007, to 104.3, the lowest reading since March, 2003.

NAR Chief Economist David Lereah to point to "signs of stabilization" and predict a leveling out of home sales in the months ahead. But in March, existing home sales fell 8.4% year over year, marking the sharpest plunge in 18 years and the beginning of what is sure to be an illuminating spring season.

McPherron, on the other hand, says he wouldn't be surprised if home sales were still soft well into the summer months, even though year-over-year comparisons could improve. And if the trend set in March continues, as the numbers suggest, into April, May, and beyond, the many sellers who are struggling to make their mortgage payments and holding out desperately for a spring buying boom could be in for a shock, at least, and foreclosure at worst.

I think it is safe to say many savvy real estate investors have left the market. It was a game of musical chairs for them and the music stopped mid summer of 2005. Couple that fact with a new tightening of lending standards and any realistic hope of re-igniting the market looks dismal. To keep the momentum at the levels of 2005 you would need the same level of speculation. In my opinion it’s not going to happen.

Though irrational markets can go on irrationally for longer than any of us can venture a guess, fundamentals don’t support it going on much longer.
Time will tell, but my guess is July 2007 will be a defining month.
Vern