There are few people in the United States who have earned less trust for their economic forecasts than the chief economists of the National Association of Realtors. So when the current inhabitant of that august office, Lawrence Yun, looks at the latest figures on existing home sales -- up 5.5 percent in September over August, -- and says "In terms of sales, I think we have bottomed out," the proper reaction is gales of laughter.
However, the bump up in existing home sales does mark the first year-over-year increase since November 2005, which is newsworthy, if only because it is just about the only encouraging economic datum discernible in gloomy reports from the financial front lines all over the world. (For example: On Friday: Goldman Sachs announced layoffs of 10 percent of its work force while Chrysler announced layoffs of 25 percent.) If the U.S. housing bust was the proximate cause of current economic turmoil, then a stabilization of the housing market is a key prerequisite for a turnaround.
But there are two numbers that may deserve more attention than the rise in sales.
- The median home price declined 9 percent year-over-year.
- According the National Association of Realtors, foreclosure-related sales accounted for 35-40 percent of total sales.
Declining prices will lead to even more foreclosures. If you can't refinance your mortgage because the value of your house has declined, you are more likely to be unable to make your mortgage payments. More foreclosures equals greater overall stress on the economy.
We won't know if the housing market has bottomed out until we see home prices stop dropping. And I'm not sure how soon we should expect that to happen, now that the long-feared recession appears to be setting its fangs into the flesh of the global economy.