The Housing Chronicles Blog: Good news/Bad News

Saturday, August 30, 2008

Good news/Bad News

LA Times came out with a pretty even-handed article on the latest bit of good news on the economy:

U.S. gross domestic product increased at a brisk 3.3% annual pace in the April-June quarter, according to the Commerce Department. That was the best showing since the third quarter of 2007, beating the government's earlier estimates of a 1.9% growth rate and topping economists' forecasts of 2.7%.

And more good news:

Exports grew at a 13.2% rate in the quarter, more than double the first-quarter rate. Consumer spending rose 1.7%, the biggest increase in nearly a year, as government rebate checks of as much as $600 per person sent shoppers scurrying to malls and big-box retailers.

Here’s the reality check:

However, some economists questioned whether those factors could sustain economic growth through the second half of the year and into 2009.

And this is cause for concern:

The GDP report also showed that businesses cut investments in equipment and software by 3.2%, more than in the first quarter, and investment by home builders fell 15%, although this was an improvement over the first-quarter drop of 25%.

After-tax corporate profits, meanwhile, fell 3.8% in the second quarter after increasing 1.1% in the first three months of the year.

MSNBC’s article is less realistic, though the subtitle does back off from actually calling a bottom.
And the basis for calling the bottom? Home prices are still dropping, just not by as much:

"If you look at the year-over-year numbers they are still going down but not accelerating to the downside quite as much as they had been in a number of cities,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “So we are seeing hints of bottoms.”

(psst. If I were one of the rating agencies that screwed the pooch rating worthless mortgage backed securities as triple A, I would hesitate going out on yet another limb. Then again, they don’t have much credibility to lose. And ‘seeing hints of bottoms’ sounds more like a peeping tom than an economic analyst.)

The recovery in the housing market is being slowed by the availability of credit, now that lenders have substantially tightened up guidelines on approving loans. The supply of mortgage money has also been crimped as the two government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac, struggle to cope with mounting losses from foreclosures.

Ending the practice of loaning money to completely unqualified people is not what’s slowing the recovery in the housing market. Whatever impediment is in place keeping home prices wildly out of whack compared to everything else, is what will slow the recovery in the housing market. And that includes bailouts.

The heavy pace of foreclosures has also been a major force pushing home prices lower, as lenders aggressively price their backlogs of repossessed real estate, hoping to unload them before prices fall further. Once the pace of foreclosures begins leveling off, the pressure on prices will ease.

As far as I have seen, the majority of banks have done anything but ‘aggressively price their backlogs of repos’. In fact, relatively few repos are priced to today’s market and even fewer banks can actually move quickly enough to close the deal. However, the ones that do have been rewarded with fast sales.

Let’s hope that trend changes.

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