— “Calling the Trend” Column by George Leong, B.Comm.
Jobs and housing remain issues when it comes to economic renewal. Without one or the other, it would be difficult to expect strength in the economic recovery.
In housing, when the fear of losing jobs remains a contention, buyers will be hesitant to buy and especially bid up housing prices. And without appreciating home values, there is less desire for home equity loans to spend on renovation and other big-ticket items. The reality is that home prices across the nation continue to decline, albeit at a slower pace. The current housing data continue to be stagnant and indicate slow recovery.
The reality is that, without jobs, confidence tends to be low. Confidence in buying homes fell in February, according to the National Association of Home Builders. Based on a survey of 477 builders, there are fewer buyers, and sales over the next six months are not looking promising.
In February, housing construction continued to decline after the construction of new homes and apartments fell 5.9% to a seasonally adjusted annualized rate of 575,000 units, just above the estimate of 570,000. The positive was that the January reading was revised upward to an annualized 622,000 units, the highest level in 14 months. The readings are encouraging, but we need to see the housing metrics continue to improve.
Building permits came in at an annualized 612,000 in February, lower than the 622,000 in January, but higher than the 601,000 estimate. This reading is key, as it helps to indicate housing demand going forward and the amount of projects builders have in the works.
New home sales fell 11.2% to a record low in January, with the median sales price also falling 5.6% sequentially and 2.4% year-over-year. Sales of resale homes plummeted 7.2% in January, the second straight monthly decline and the weakest since June 2009, according to a report by the National Association of Realtors.
And with the upcoming end to the first time homebuyer credit program, the housing market could continue to be weak. Without incentives, I expect some hesitancy in buyers wanting to commit to property in fear of losing their jobs or buying homes and watching the price fall in subsequent months.
The fear of depreciating home values is a critical issue. With foreclosures well into the millions across the country, the last thing homebuyers want to do is to buy property and then watch the home value fall below the mortgage value, which is what triggers foreclosures. Somehow this cycle must end in order for confidence to return to the housing market.