An investor friend sent me some notes today. Some of it I knew, some of it was disturbing:
“existing house sales reported by the National Association of Realtors, appear to be overstated”. Apparently NAR uses models to expand its surveys. the samples are based on MLS, but many MLS systems have consolidated and so it seems that NAR has not taken this into account.
CoreLogic uses numbers from actual recordation of transfers; these numbers make it look like NARs numbers are overstated by about a third. The article goes on to say that we are 2.5 million homes (all things considered) over the usual inventory numbers for a normal market; that absorption (optimistically) is about 900k homes per year; and so it will take almost 3 years before we return to a more normal market.
Since prices are still above the long term trend line, the author expects a further 20% drop in prices before things stabilize. Robert Shiller of Yale says there is a “substantial risk” of another 15% or 20% decline in house prices. Of course, with the current administration pushing new subprime mortgages again, who knows what will happen?
If the housing market is slow for 2-3 more years, and we see a further price decline of 20%+ in single family homes, then the overall economy will likely not recover for at least 3-4 years, and, as I have said in the past, we are in a deflationary period even though we are seeing some prices rise.
As income continues to fall and taxes rise, demand will shrink, feeding the deflation monster. As more and more Americans become renters again, new home starts will also fall. It’s going to be a long time before we see a normal market.
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