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A long way to go for the housing market
A "For Sale" sign hangs in front of a home in Naples, Fla.
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Kai Ryssdal: Here's what we're gonna do this afternoon: We're gonna tell you something you haven't heard in a quite a while now -- good news about the housing market -- and then, well, we're gonna pull you firmly back down to earth.
The news is of new homes. We learned this morning that for the first time in six months, sales are up.
But that's right about where the housing market gets back to business as we have come to know it, because a separate report today said home prices plunged more than 14 percent in the first three months of the year.
Marketplace's Amy Scott reports now on a key part of the economy that just can't seem to get it going again.
Amy Scott: It's tempting to see the April sales increase as a sign the market is turning around. Well, don't be too tempted.
Greg McBride: It's only an increase because the March figures were revised lower. Otherwise, the April numbers continued to be pretty disappointing.
That's Bankrate.com analyst Greg McBride. For one thing, sales of existing homes dropped last month and home prices continue to slide. The 14 percent decline in home prices in the first quarter is five times the rate of decline in the last housing downturn. The rise in foreclosures is pushing prices down as more homes sit vacant. A clampdown on mortgage lending is keeping would-be buyers out of the market.
Christopher Thornberg is with Beacon Economics. He says home prices had hit such astronomical levels compared to incomes during the housing boom, prices had to come down.
Christopher Thornberg: In the long run, this is going to be a good thing for the U.S. economy. In the short run, however, it's very painful and it's painful because people have been relying on the value of their home to support their spending over the last few years.
Indeed, there's evidence today the housing downturn is weighing on consumers. A business group, the Conference Board, said its consumer confidence index hit its lowest level this month in almost 16 years.
Economists say eventually, home prices will fall far enough to get people buying again -- that's already happening in some hard-hit markets like Detroit -- but realtors say nationwide, there are enough homes on the market now to last more than 10 months. A six-month supply is considered healthy and analysts say the market's got a lot more healing to do.
In New York, I'm Amy Scott for Marketplace.
In yesterday's program Dan Ariely was trying to determine what a house was worth. Here is my formula. First: Get one of those memory erasers from the movie Men In Black, and erase everything you have heard about house prices for the past seven years. Second: Find an old multiple listing book from 2001, and find a comperable house to the one you want. Third: Take the price listed and subtranct 5% becasue at the time that was the asking price. Then subtract 10% for the long term wage supressing effects of globalization. Then subtract 10% for effects of the current stagflation on your actual income, and the possibility that we are headed for recession. Therefore, if a house was priced at $200,000.00 in 2001, you shoud only pay $150,000.00. This may seem unrealistic since the same house may have sold for $400,000.00 in 2005. However, you need to remember that you need to save for retirement, and you will need to start paying down the country's 10 trillion dollar national debt, and you may ever want to take a vaction once in a while, and still be able to send your kids to college. Think about it! Something is only worth what someone is willing to pay for it!
