Hitting a Bottom in Housing

CHICAGO, April 6, 2009 — "An unexpected jump in new and existing home sales, a fairly sharp increase in mortgage applications, and a surprise increase in pending home sales prompted many to declare the bottom in housing in the month of February. Even home prices, which had been falling like a rock, showed some signs of stabilizing during the month. Moreover, speculators appear to be re-entering the market, picking up properties on the cheap," says Diane Swonk, chief economist of Mesirow Financial, in her annual housing market edition of Themes on the Economy.

"The housing market is still a long way from healthy: home sales are still down substantially from the lows they hit during the turbulence of the fourth quarter; pending sales were at such low levels, there was really nowhere to go but up; and more than 70% of the mortgage applications we saw in March were refinances instead of purchases," notes Swonk.

In her April newsletter, Swonk takes a closer look at the outlook for housing, how close we are to a bottom, and what housing shifts suggest for the broader economy.

• Starts of single-family home sales, in particular, are already close to zero, and can not fall much further. Multi-family starts are also exceedingly low, off more than 50% from their 2005 high. On net, overall starts are expected to decline again in the second quarter and then begin a gradual rebound in the second half of the year.

Regional Differences: The West and the South are expected to remain the weakest markets when it comes to construction activity, as they are still suffering from the greatest overhang of vacant new properties.

• Home sales are expected to bottom sooner than starts. They may have even hit their turning point in February, although a safer bet is probably May. This should not be a surprise, given the fact that it is easier (albeit not "easy") to get a mortgage to buy a home than to get funding to build a housing development.

  Regional Differences: The hardest hit areas in the West, which includes California and Nevada, are expected to post the strongest gains, as they currently offer buyers the best deals from short sales and foreclosures. The Midwest is expected to perform close to the national average, while the South and the Northeast remain laggards.

• Prices. Home values plummeted as the economy slipped deeper into recession and credit markets seized last fall. By January, most indices were showing double-digit declines from a year ago. The best bet is that prices will end the year lower than during the bulk of 2008, but will come up slightly from the lows of the first quarter.

  Regional Differences: The Northeast is expected to experience the greatest downward pressure on prices, as it was late into the correction. Declines in New York could be particularly large as the number of foreclosures balloons. The downward pressure on prices in the South, particularly in Florida, is also expected to remain fairly intense, given the overhang of vacant homes.

"Housing is expected to swing from a drag to a push on overall GDP growth in 2009, for the first time in four years. That shift, coupled with tax incentives to lower the carbon footprint of individual homes, is expected to provide a boost to spending on everything from furniture and appliances to building materials. Any gains that we do see in housing and housing-related activity, however, will pale when compared against previous recoveries," concludes Swonk.

The April issue of Themes on the Economy as well as archived issues can be found at www.mesirowfinancial.com.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with $31.4 billion in assets under management and more than 1,100 employees in locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals. For the fiscal year ended March 31, 2008, the firm posted $492 million in revenue, with more than $246 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.

For more information, contact: Diane Swonk, Mesirow Financial, 312.595.7122, or Olga Camargo, Mesirow Financial, 312.595.7128.

 

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