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Economists Upbeat On Housing

“I’m thinking of leaving my husband,” complained the economist’s wife. “All he ever does is stand at the end of the bed and tell me how good things are going to be.” -Jokes.net

Despite all the negative news coming from the U.S. housing market these days, a recent survey shows a number of economists remain upbeat on the sector. The latest policy survey by the National Association for Business Economics asked members, “Would you buy a house today if you intend to use it as a primary residence?” 3 out of 4 economists responding said yes. 1 out of 3 went so far as to say they would purchase a second home. Yet, when it came to predicting a “meaningful recovery” for the beleaguered housing market, fewer than 1 in 5 economists (out of the 258 responding) expected the rebound to take place by the middle of 2008. About 38% predicted a recovery by the second half of 2008, and 42% said 2009 or later. Long term, survey participants were more positive on the sector’s performance. About 42% of economists surveyed said they expect home prices to be flat, on average, over the next 5 years, while 41% expected price increases. Only 16% of those surveyed expected price declines.

While I respect the views of the professional economists participating in the NABE survey, my interpretation of the data leads me to a different conclusion. Consider the following. The National Association of Realtors reported today that existing-home sales slipped to an annual rate of 5.75 million in July, down 0.2% from the revised 5.76 million pace in June. The number of homes for sale rose to 9.6 months’ supply, up from 9.1 months in June. The glut is the biggest supply of homes since October 1991. Mike Larson, a real estate analyst with independent research firm Weiss Research told CNN Money:

Forget ‘location, location, location.’ The most important factor in today’s real estate market is ‘supply, supply, supply’… We are literally swimming in an ocean of homes for sale. In fact, at 4.59 million units, we have the most raw inventory for sale in history.

The median price of an existing home sold last month fell 0.6% from a year earlier to $228,900. July marks the 12th straight month that the median home price has declined. Mark Zandi, chief economist at Moody’s Economy.com, told Reuters today that, “This shows that the housing downturn continues to intensify. It shows no sign of abating. Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead.”