Bottom’s Up!

No, you won’t see a reduction in foreclosure sales. And no, you won’t see prices rising. But there are some early signs that the housing market is (finally) improving. And that’s great news for the US economy.

Housing is one of those funny markets. There’s one market for contract sales, another for distressed sales. There’s one market for starter homes in the Cleveland suburbs, and there’s another for Bel Air mansions overlooking the UCLA campus. But one thing about the housing market that is common to all types of homes is that activity precedes pricing. That is, before prices rise, activity needs to pick up. And before prices fall, activity drops off.

Lately, housing activity has improved, especially for lower-end houses. In New York and New Jersey, the number of homes under contract that cost less than $400 thousand rose dramatically compared with a year ago. This makes some sense—record low mortgage rates apply especially to smaller mortgages. Jumbo loans don’t qualify for 30-year rates under 4%. The combination of extremely low loan rates and lower prices has created record affordability in entry-level homes.

But prices continue to show modest declines, belying hopes for a recovery. On a year-over-year basis, home prices are down about 4% across the country. Many fear that if prices decline much more, it might spark a new wave of bank insolvencies which could further hurt the economy.

But it’s always darkest at dawn. And when housing activity picks up even as prices keep falling, you know that a true recovery isn’t far off.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T16:55:50+00:00 January 19th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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