First green shoots for US home sales?

Posted by robin in Financial Articles Market Commentary Tuesday October 28, 2008 2:04 pm

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If the epicentre of the credit crunch is the US housing market, then news of its health, or rather lack of it, merits attention.

US house prices have been falling for many months, years even. At some point the market will bottom. When that happens the muddy waters will start to clear. The value of the toxic mountain of mortgage-based derivative products can be established, which will help the banks…and stronger banks mean they might deign to revert to purpose i.e. lend money.

The trillion dollar question is: when will US house prices bottom out? A Goldman Sachs forecast reckoned the first quarter of 2009. We’re now near the end of October so, if right, we’re looking at perhaps three to five months away. 

An FT report on home sales today offers some support to the forecast…

New US home sales exceeded forecasts and rose in September by 2.7% having fallen in August by 12.3%. The inventory of unsold homes dropped too.

This follows earlier news last Friday that sales of pre-owned homes also rose by more than forecast last month. 5.18m homes were shifted against an expected 4.9m.

It marked the first time in THREE years that pre-owned homes sales rose on an ANNUAL basis. Up 1.4% compared to September 2007.

Elsewhere, Realtytrac, which runs a leading site tracking home repossessions across the US, reported a 12% decrease in the number of foreclosure filings for September. Though this is an improvement on increases of 8% and 12% in July and August respectively, much of the fall was attributed to changes in some individual state laws, which slowed the foreclosure rate. 

Does all this add up to a turning point…or one not far away? A constitutional bias to optimism has caught me on the wrong side of the bears more than once, so I’ll be mindful of forecasts for soaring US enemployment. This could peak out at 9% somewhere down the track from a little over 6% now. Hardly a prop for house prices. 

So I’ll heed the dismal scientists when they counsel caution on this housing data. It is a reflection of more clement economic conditions prevailing in July/August they say. The violent financial storm that has prevailed in October could reverse this modest progress. 

But on a day the Bank of England reports its cost estimate for the credit crunch - an unimaginable $2.8trn - and in the knowledge that storms do eventually pass then maybe, just maybe, this is a bat squeak of good news amid the cacophony of bad. 

Certainly further news due from the Case-Shiller house price index is worth looking out for.

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