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Letter from America – The State of The US Housing Market

August 24, 2011  |  by Anne

You’re familiar with the name Jonathan Miller from RBI’s monthly Pending Home Sales Index releases, but learn more about Miller’s insights on America’s loss of its triple A credit rating in yesterday’s Global Briefing article.

Full article available here: and also below.



Letter from America – The State of The US Housing Market

A few weeks ago, as the global financial markets began their rollercoaster ride, I wrote about the potential impact on the US housing market. Now I’ve had a few weeks to observe and further reflect on its effect.

There remains no hard data on the impact of this volatility because housing is a slow moving supertankerish-like asset transaction, unlike stocks which can change significantly in a few minutes.

There has been a “boom” of anecdotal testimonials on the economic impact of the instability of the financial markets ranging from suggesting it is business as usual to suggesting the real estate world has stopped.  But there is still no empirical evidence of anything related to housing at this point.

However, I believe there will be an observable impact in the coming months.

Initially, mortgage rates dropped sharply as global investors fled to safety in the form of US Treasuries, despite the S&P ratings downgrade. The US Federal Reserve has said it will support a low interest strategy through 2013 (conveniently through the 2012 US national elections).

I look at the surge in bad economic news despite low interest rates as causing businesses to hold the line on hiring.  The combination of low mortgage rates and high unemployment won’t allow banks to ease underwriting standards no matter how much more affordable housing actually is.  It comes down to this:

Question: What housing market barometer should we be looking at?

Answer: New pending home sales.

To gauge market sentiment, we want to look at the moment where buyer and seller have a “meeting of the minds” and a contract is signed.  Prices are one of the last housing metrics to move.  Sales activity leads pricing trends.

There are few regional US housing markets that publish pending home sales trends like the National Association of Realtors’ Pending Home Sale Index.   I developed a similar index for the Washington D.C metro area with MRIS, the regional multiple listing service, for their analytics arm called the RBI Pending Home Sales Index [].  The August results will be released in early September and NAR’s result will be released three weeks later.

Tracking signed contract activity in the middle of August is made more difficult right now for several reasons:

Seasonality: Three years of US real estate market volatility from the global credit crunch, which accelerated with force after the Lehman Brothers Bankruptcy “tipping point” and the US federal government’s 2009-2010 homebuyers tax credit, have made it more challenging to measure a realistic level of activity.

Summer doldrums: August is one of the slowest months for transactions in the U.S. making a variance from an already slow period more difficult to analyze.

Will there be a consumer “pause”?

When consumers are faced with bad economic news, they tend to take longer to make decisions as they absorb the new information.  Some will postpone making a decision to purchase and perhaps many may resume their activities.  The concern is not whether there will be a pause, but for how long the pause will last.  Fewer sales translates to weaker prices.

The longer the time frame of the pause, the more damage to an already weak housing market will occur.

Jonathan J. Miller CRE, CRP is President of Miller Samuel Inc, Real Estate Appraisers and Consultants in the US.


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