The Realtors reported that existing home sales tanked in March. Their spin was that bad weather caused the decline. Chief Economist David Lereah said, "However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers."
I’m very skeptical that anything is improving in housing, but let’s dissect existing home sales. Things that can improve home sales:
- more first-time home buyers
- more existing buyers moving into new homes
- more sellers receiving offers at their asking prices, allowing them to buy another existing home.
- lower mortgage rates improving the affordability of homes
Which of these are happening? Certainly not more first-time home buyers; as we explained in a previous post, home sales borrowed from the future in the past few years, by allowing first-time home buyers to get their first house ahead of schedule. However, high home prices are preventing that from continuing.
Next, are more existing home owners moving into new homes? Not with new home sales plummeting.
Are more sellers getting the pleasant surprise that their asking price is being met? Hardly, with home prices soft as we noted last month.
So maybe lower mortgage rates are helping?
Well, mortgage rates are down a bit from their peak, but not enough to stimulate a new wave of buying.
Roll it all together and the fundamentals are not in place for a rosy real estate market.
Calculated Risk has two posts today on the subject, noting that the March figure released today is based on deals that were negotiated in February (or perhaps January), before the sub-prime mortgage blow-up.