The Current State of the Housing Market

The Great Recession started with exploding gasoline prices in the summer of 2008 and the financial crisis in the fall of the same year.  Many have argued that falling real estate prices beginning in 2006 acted like water in winter finding previously unseen but serious faults in the financial system then freezing and expanding until some financial institutions found themselves in pieces and others wondered who was next. 

The real estate sector remains of interest as the economy slowly recovers.  Zillow's chief economist, Stan Humphries uses data generated by Zillow to calculated month-on-month and year-on-year annualized and indexed home values (Zillow Blog, "National Home Values Continue to Fall in April; Sales Likely to Dry Up After Tax Credit Expiration").  Although the worst of the decline appears over, prices continue to decline and the market as a whole shows considerable weakness.  Humphries writes

Homes values fell 0.38% nationally from March to April and were down 4.1% from their levels in April 2009 (see Figure 1 for monthly and annualized appreciation). The rate of monthly depreciation has remained fairly steady since January, albeit at rates slightly above October 2009 levels when we recorded the smallest month-over-month decline in recent years (-0.27%).

Home values declined month-over-month in 87 (70%) of the 124 metropolitan statistical areas (MSAs) tracked by Zillow this month, and year-over-year declines (defined as a decline of more than 1%) in home values were recorded in 96 (77%) of the 124 metros.  Foreclosure activity continued to increase nationally with 0.11% of homes in the U.S. being foreclosed in April...

Humphries includes a forecast.

We expect to see pending home sales dry up significantly in the May pending home sales report from the National Association of Realtors.  Existing home sales will continue to stay robust through the end of June, when contracts that were signed by the end of April must close in order for buyers to receive the tax credits.  Expect them to fall off precipitously thereafter as we pay back the demand we’ve pulled into these months.

The National Association of Realtors report on existing home sales found that sales, against expectations, declined (Reuters, "Existing Home Sales Tumble Unexpectedly in May".

Sales of previously owned homes fell unexpectedly in May as delays in processing mortgage applications hampered the closing of contracts benefiting from a popular homebuyer tax credit, an industry group said on Tuesday.

The National Association of Realtors said sales fell 2.2 percent month over month to an annual rate of 5.66 million units from an upwardly revised 5.79 million-unit pace in April.

Analysts polled by Reuters expected May sales to rise 5.5 percent to a 6.12 million-unit pace from the previously reported 5.77 million units in April. Sales were up 19.2 percent compared to May last year.