Yesterday morning, the U.S. Department of Commerce reported that sales of newly constructed homes fell during November to their lowest level since January 1991, as the median price of new homes rose slightly compared to the previous month.
Meanwhile, the National Association of Realtors reported that sales of existing homes fell to their lowest level since 1989 even though prices of existing homes declined during November at the fastest pace since at least 1968.
In response to yesterday’s housing reports, numerous financial pundits suggested that the housing market will continue to deteriorate during the months ahead. In contrast, my research indicates that the two-and-a-half year downturn in the housing market is nearing an end.
That’s an important distinction because the U.S. economy has historically performed well during periods when the housing market was either stable or improving.
Although I expect home prices to continue to trend lower during both the current month and January 2009, President-elect Barack Obama and numerous members of the Democratic-controlled Congress have repeatedly suggested that they’ll enact new legislation during the coming year to curtail the number of home foreclosures.
Meanwhile, inventories of newly constructed homes have fallen to their lowest level since April 2004 and mortgage rates are currently at their lowest level more than five years. In addition, the annualized pace of new home sales is currently at an extremely low level in comparison to the size of the U.S. population, as you can see in the chart below.
I therefore urge you to ignore the factors that negatively affected the housing market over the past two years and to focus instead on the factors that will likely positively affect housing during the months ahead.
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