The US Housing Market: On the way back down?

June 27, 2009

by Scott Sambucci


Watching the housing market on a week-to-week basis this Spring, there’s clear evidence that the US housing market showed signs of short-term positive movement.  But are we already on the way back down?  The real question is whether this Spring’s activity is merely reflecting normal seasonal effects or a longer term structural effect.

Here are a few factors that we’re watching as we move from the Spring selling season and into the summer heat:

Inventory levels: Using the Altos-20 Market Composite (composed of the same markets as the S&P Case Shiller Home Price Index) as a proxy for the national housing market, there’s a curious trend in the total number number of available homes for sale since January.  Total supply has remained flat this Spring, which could be explained by two factors, among others.  First, the foreclosure moratorium instituted earlier this year served its purpose – it delayed foreclosures.  Second, it’s reasonable to assume that potential sellers in non-distressed situations look at the market prices and said – “You know what, I’m going to wait another year before I try to move up to a bigger house..”

Altos 20 Inventory - June 09

The foreclosure factor could certainly result is a rise total inventory levels once these homes restart through the foreclosure process.  Keep an eye on inventory levels as July and August wears on.

Absorption by Price Level:  Homes are selling this Spring, but it’s important to know which ones are selling.

Absorption by Quartile june 09

Examining the US housing market absorption by price quartile since January 2008, it’s clear the that lowest 25% of the market is seeing a bulk of the activity.  Compare the number of homes exiting the market each week and these least expensive homes account for about 50% of total activity and continues at a strong pace through the end of June.  This furthers the argument that existing, non-distressed home owners are slower on the draw to put their home on the market, as these lower-priced homes are likely getting snapped up by investors, first-time homebuyers taking advantage of low mortgage rates and tax incentives for home purchases this Spring.  As long as absorption levels remain steady, then demand will meet supply offering ongoing stability to the market.

Seasonal vs Structural – Chicago as a Case Example: Take a look at price trends in Chicago since late 2006 through this week.  Chicago is a highly seasonal market, with prices accelerating in the Spring after a price decline each Fall.  This past week, we’re seeing downward movement in Chicago’s asking prices as we reach the pivotal July 4 point in the selling season.

Chicago Price since Jan 07

While it’s easy to get excited with this Spring’s housing activity, there may already be signs that the market’s buoyancy will be short-lived.  On the national level, the same downward movement is also evident over the past couple of weeks.

Altos 20 Price June 2009

What are your thoughts?

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