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Positive Housing News for April

Posted by: Henry Baum | Jun 09,2008


Good news!  About time, huh?  It seems lately that the news on the economy has been pretty bleak.  Story after story of financial powerhouses showing quarterly losses.  There was talk last week of the credit crisis sliding into a credit recession: a period when it will be much harder for people to secure loans.  Though lenders want to approve loan applications to bring in profits, they cannot take a risk on borrowers with marginal credit.  

Put that together and people can expect the economy to run pretty slowly for at least another year.  But then the housing numbers came in for this past April and there were waves of excitement sent through Wall Street.  In April, housing sales went up, which came as a surprise, given the frequent harping on bad economic news.  As a result, the stock market rebounded.  The Dow Jones Industrial Average and S&P 500 both saw gains, while NASDAQ stemmed the tide of its losses. 

The Housing Crisis

When the housing bubble burst, it had a two-fold effect.  Not only were a growing number of current homeowners unable to pay off their mortgages, but prospective homeowners were getting gun shy.  While home prices were dropping, this was not enough of an incentive to buy during such a weak economy.  Why bother buying if the home value was going to plummet further, devaluing equity.  In addition, a lot of prospective homeowners may have been waiting to see how far home prices would drop before applying for a mortgage.

The Federal Reserve’s cut in the interest rate were designed to get the economy moving again: most specifically to inspire people to apply for new loans.  Even though there may be more restrictions on new loans due to lender timidity, the hope was that borrowers would look to make new investments.  With the credit crisis on the way in the right direction – albeit slowly – there is a sense that the economy has bottomed out and is headed in a better direction.  Coupled with low interest rates, it maybe shouldn’t come as so great a surprise that home sales went up.  

Investors and mortgage lenders will not feel fully satisfied until there is a string of months of positive home sales.  Time will tell if this will be the case.  But anything that signals higher consumer confidence is cause for some optimism. The fear was that prospective homeowners were getting increasingly gun shy and April’s news shows that this may no longer be the case.  

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