Continued Housing Recovery Requires Growth in Job Market
U.S. existing home sales fell by 16.7% in December 2009, to 5.54 million units, which was far worse than many analyst expectations. This report follows much better than forecasted existing home sales results this past Fall season – which culminated in a 26% surge over the three months prior to December.
The hit to existing-home sales in December suggested to many that perhaps there is more downside risk in residential real estate. We, at Hennion & Walsh, do not believe this to be entirely realistic and still contend that there is more downside risk in commercial real estate than residential real estate at present. We would suggest that many of the positive results observed in the housing market during the Fall season can primarily be attributed to distortions created by consumers believing that the 1st Time Home Buyer Credit program was about to expire. Since many of those earlier sales were essentially “front loaded” it should not be too surprising that current sales are pulling back.
However, on a positive note, a careful review of the underlying data shows that residential real estate is still on the path to recovery while recognizing that different areas of the country are recovering more quickly than others. The chart from the National Association of Realtors provides credence to this viewpoint. Further, first time home sales remain 15% above December 2008 levels.
In addition to the home buyer program incentive previously discussed, the recent poor housing numbers are likely just a lingering impact of high unemployment, general consumer spending apathy and an overall sluggish U.S. economy. The continued recovery in the housing market is contingent upon future growth in the job market. This becomes even more of a concern when one factors in a 2010 consensus unemployment rate forecast of 10.1% (vs. a 2009 year-end unemployment rate of 10.3%), according to Blue Chip Economic Indicators.