By Beth Pinsker Gladstone
NEW YORK, May 31 (Reuters) – Recent conflicting housing data
has confused consumers and economists alike.
Mortgage rates are hitting new historic lows, but, contrary
to conventional wisdom, pending home sales and mortgage
applications have declined. At the same time, home prices are
rising. And that’s just this month. With so much fluctuating
data, how can home buyers possibly figure out whether it’s the
right time to buy or sell?
“2012 will be a very confusing year for consumers,” says
Stan Humphries, chief economist of real estate website Zillow
Inc.
With seesawing numbers, those seeking to buy or sell
property are losing perspective on whether housing is on the
upswing … or still waiting to hit bottom.
Humphries sifted the tea leaves of housing data for Reuters
so non-economists can figure out what’s going on and how to
proceed.
Q: How should people read the numbers?
A: People need to focus on how a number is relative to last
year rather than focus on monthly blips. Or, if you are going to
look at a monthly number, look at it over a few months, rather
than get freaked out by something like a (one-month) drop in
pending home sales.
Q: Mostly, people are trying to figure out if the market has
hit bottom and is now in recovery. How can they figure that out
based on the numbers?
A: People get the impression that the bottom is a discrete
period of time. But the bottom economists talk about is a
process. Economically, you see a trough in home sales, and then
they start to rise. After that, you see long-horizon buyers
(investors, second-home buyers and retirees) re-enter the
market. Then you see mainstream buyers get back in. Then you see
pockets of metros recover, then the metros overall, then the
national index.
Q: But for now, it’s just chaos?
A: From month to month, these things are going to bounce
around. A single month of bad numbers does not scuttle the
housing recovery. Consumers feel a bit whipsawed, but the market
is changing direction. At the fragile point where it is turning,
indicators go in different directions.
Q: Is there any way to makes sense of the system as a whole?
A: The best advice is to use a set of numbers to triangulate
a trend. If you look at a whole bunch of numbers, you find a
pretty positive picture – such as rents are up 3.2 percent
nationally while home values are down 1.8 percent. That is the
makings of stabilizing prices.
But what tends to get emphasized instead is something like
pending home sales are down from last month [down 5.5 percent in
April over March, according to the National Association of
Realtors Pending Home Sales Index]- but that’s a little bit of
noise factor. What you need to ask is: Are they up from last
year? Of course, confidence will be higher once all those
numbers move in lockstep.
Q: Which data should a potential buyer look at to figure out
how to time the market?
A: The most important metrics to look at are home values [up
0.1 percent in March, according to the S&P;/Case Shiller
index]and mortgage rates [dropped to 3.6 percent for
30-year-fixed rate, according to Zillow]. I think a lot of
buyers try to time the very bottom of the market, and try to
avoid any loss at all, but I think that’s penny wise and dollar
foolish. They really need to focus on financing cost.
Q: What should sellers look at?
A: Sellers should look at inventory on the market and pace
of home sales [down 20.6 percent over 2011, and up 10 percent
over 2011, respectively, according to the National Association
of Realtors]. In a lot of metros, you’re seeing relatively tight
inventory and values are up from last year, especially in
certain zip codes. The shortage has a few different sources. One
is that the pace of foreclosures hasn’t picked up, and a lot of
homes are still held by banks. The other is that 31.4 percent
are in negative equity – being underwater on their homes – and
they can’t sell.
