Jack Healy’s writeup of the latest data on home sales quickly turns into a discussion of whether or not prices are close to “reaching bottom.” Hope springs eternal, but in many parts of the country they still seem significantly above trend. What I would say is that the combination of large declines in sales prices with large increases in sales volumes is good news in the sense that it means that whether or not prices are currently at the bottom, they’re moving aggressively in that direction.
Since most people own homes, people aren’t, in general, enthusiastic about price declines. But the worst possible situation is really one in which nobody will pay what people are asking for houses, but nobody will agree to sell for what people are willing to pay. That kind of scenario might give people who aren’t actively looking to sell some comfort, since they see high list prices. But ultimately it’s a false comfort—a house is only worth what someone is actually willing to pay for it. And in economic terms, I don’t think dragging out the needed adjustment in home values accomplishes anything for anyone. All it really does is hurt people who might be looking to buy, since they would continue to face a frustratingly overvalued market and thus perhaps not be able to find the kind of housing they’re looking to live in.
Meanwhile, mortgage rates are heading down “The nationwide average for a 30-year fixed mortgage is 5.08 percent compared with 5.62 percent a year ago, according to Bankrate, and many lenders are offering loans with interest rates near 4.75 percent.” This, like the fall in home prices, is good news for people who’d been staying out of the bubble market but would still like to own property in which to live. But while the mortgage rates have gotten a lot of discussion in terms of the potential for their impact on house prices and foreclosures, I think the bigger deal is the potential impact on regular old refinancing. Low rates ought to make it possible for a fairly large number of people to refinance and reduce their monthly payment. That, in turn, frees up money that can be used to buy goods and services—leading to more employment, etc.
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