Housing Market: We’re Looking
at a Double-dip

Housing is now officially in a double-dip recession. George discusses what's going on with the U.S. real estate market at the moment.As I have been saying, housing continues to be a cesspool for capital. The latest reading from the S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines, which, in my economic analysis, is not good.

What makes the situation that much worse is the fact that housing is now officially in a double-dip recession, with prices in 12 of the 20 markets selling below their 2006 low prices, according to the Case-Shiller 20-city Index. This key index has declined in eight straight months and clearly continues to point to the fragile housing market driven by high foreclosures and short sales of properties. This is a real problem that will hamper growth.

The NAHB Housing Market Index, an indication of the sentiment of builders, came in at a dismal 16 in May, which is terrible, as a reading below 50 suggests negative sentiment amongst builders. The reading has not been above 50 since April 2006.

Housing Starts were weaker than expected in April, with an annualized rate of 523,000, which was below the estimate of 563,000, and the result of 585,000 in March. Building Permits were also soft at an annualized rate of 551,000, below the estimate of 590,000, and a revised 574,000 in March.

Advertisement

I remain bearish on the housing market in 2011 and into 2012. Yes, there are some encouraging signs, but the constant price declines and weakness among the homebuilders remain issues that need to be remedied.

The reality is that the continued weakness in housing impacts wealth and consumer spending, and could drive a double-dip in the most extreme circumstance.

The major hurdles remain the continued high foreclosures and short sales in housing, along with declining home prices. Obviously, there are still reasons to be concerned.

The housing market is improving and is better than where it stood a year ago, but I feel there will continue to be barriers as we move ahead.

Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not to worry about jobs and missing payments.

There is major concern in the critical jobs area following a weak ADP Employment Change that showed a mere 38,000 jobs generated in May. This was well below the estimate of 170,000 and the revised 177,000 in April. The result was not just a bit off, but was well off the target and is a significant concern. The ADP reading is generally a precursor to the key non-farms payrolls on Friday, so this is not encouraging.

The key will be the non-farm payrolls on June 3, in which 185,000 new jobs are expected to be added in May, below the 244,000 generated in April. And to make matters worse, the unemployment rate is predicted to rise to 9.1% from 9.0%.

This is not exactly a vote of confidence for the suffering housing market.