Is the housing market headed toward a ‘double-dip’?

 

 

Dennis Norman St Louis

Dennis Norman

Just as we are talking more about home prices “stabilizing” there is yet another cause for concern as to just where the market is headed. Last week Celia Chen, senior director of the Moody’s Economy.com research staff, issued a report stating that the odds of a near-term “double-dip recession” have increased from about one in five to closer to in in four.

Chen goes on to say that, if the economy does in fact fall back into recession, house prices are likely to fall an additional 20 percent before stabilizing in early 2012. Irrespective of a double-dip, Chen still expects an additional 5 percent drop in home prices before reaching the “low” in 2011.

The factors that Chen sites as reasons for her concern about the double-dip recession include:

  • The U.S. recovery is losing momentum. Real GDP grew 5 percent annualized during the 4th quarter of 2009 slowed to half that pace or less in 2nd quarter 2010
  • Unemployment is expected to drift back up to double digits
  • The end of the fiscal stimulus and fallout from the European debt crisis are impeding growth.
  • Foreclosures remain a downside risk, with “another vicious spiral downward” a possibility.

In response to Chen’s report, Radar Logic, a company I turn to often for housing data and reports, issued a reported title “Beware the “FALL” of 2010.” The Radar Logic report, when addressing Chen’s concerns, states “as observers of the actual housing market, while we cannot say these numbers are right, we certainly support Chen’s concern.” The Radar Logic report goes on to say that they think the order of events will be reversed though..with home prices falling in the fall and contributing to the double-dip in the recession, rather than vice-verse as Chen indicates.

The Radar Logic report then looked at historical data and applied it to what they have seen this summer season in the housing market. The end result is they see “some pretty alarming statistics.” Their report goes on to say “if this analysis is even close, then the housing market dynamics are weak at best.” One of the areas of concern they cite is the “overwhelming supply of distressed properties”.

For now we will have to wait and see what the balance of this year brings us. Yesterday’s somewhat encouraging report on mortgage delinquency is a step in the right direction….unfortunately we have a long walk in front of us.

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