Real Estate Ekes Out A Gain

Lost in the torrent of talk about austerity and cost cutting are reports about the actual economy. Today we heard that real estate is sputtering along a little better than before. Sales of existing, rather than new, homes rose slightly in March, up 3.7%. This is a nice bounce up from February’s 8.9% drop, but still leaves activity well below any reasonably healthy level. Still we take what we can in this rough real estate market.

The ongoing issue is that distressed sales still dominate activity, thus making it hard to tell what kind of sustainable recovery is under way. Or, indeed, if there is such a recovery at all. Sales have grown in six of the last eight months, which is obviously positive, but distressed sales have been accounting for as much as 40% of the transactions. This factor has led to continued price declines – prices fell 5.9% over the last twelve months and show no sign of stopping that decline.

Sales growth was well spread geographically with only the West showing a decline. The South led the way with an 8.2% growth rate.

There is also a great unknown hanging over the data: the people who issue this report – the National Association of Realtors – are revising their numbers because they are so out of step with other reports. Rumor has it that the revision might drop activity by as much as 20%. That would be quite a jolt to the baseline, but probably would not eliminate the slight gains we have been seeing over the past few months.

In any case, I think it is very clear that real estate will not be a big factor any time soon in fueling overall economic growth. Households are simply too focused on weathering the recent run up in food and fuel prices, avoiding unemployment, rebuilding battered balance sheets, and simply surviving to set off a renewed boom. My view is that prices will still trend down and that sales will bump about for another few months. It will be years before real estate becomes a reliable asset again. Meanwhile those with cash can pick up good deals. Those without will be hard pressed to get credit. This market is going nowhere just yet.