New Home Prices & Sales Data:
Light at the End of the Tunnel or a Train Coming At Us?!?!

<August 27, 2008><The New York Times>The housing market continues to struggle with declining home prices, and sluggish home sales…but according to a story in the New York Times, the pace of both of these negative trends are moderating. Is this the “light at the end of the tunnel” we’ve been looking for? Or is that a train heading our way?

A new report from the Case-Shiller Index, released Tuesday, showed that home prices in the top twenty cities dropped 15.9 percent for the twelve months ending in June 2008. Each of the twenty cities showed declines with seven of them registering declines of more than 20 percent.

Still, the Times says that the report does indicate that the declines are moderating with June prices showing an increase over the previous month for nine of the cities monitored. The Times goes on to note that for the entire twenty cities, prices did decline in June relative to May, but at a rate of 0.5 percent versus 0.9 percent in May.

And, in a separate report from the Commerce Department, sales of new homes actually increased 2.4% in July. True, the annualized rate of sale at the July pace at 515,000 units is still below the expected rate of 585,000…still, it suggests the potential of a moderating trend.

The Times report went on to quote several economists who suggested that…while there is still a lot of pain yet to come with home prices expected to continue to decline…the worst of the declines are behind us.

Other reports have indicated that while a new home sales increase is a positive sign, in fact, the growth was actually the result of buyers finally beginning to react to the drastic price cuts implemented by builders to try and clear out their bulging inventories of newly built, but unsold homes. With this factor in mind, these home sales actually contribute to home price declines.

Most economists still suggest caution as the continuing credit tightness will limit consumer’s ability to obtain mortgages, further extending sluggish home sales and declining home prices.

Still, a moderating of the rate of decline is a positive sign that the bottom of the trough may be approaching.