With respect to recent housing market developments, sales of both new and existing homes were down in January and the months’ supplies of unsold homes challenged record highs in both markets.  

On the production front, single-family housing starts and permits moved down substantially in both January and February, guaranteeing another sharp decline in residential fixed investment in the second quarter as well as ongoing losses of payroll jobs in home building. 

NAHB’s monthly surveys of single-family builders have yet to provide convincing signals regarding near-term stabilization of buyer demand or housing production.  Traffic of prospective buyers has revived to some degree since late last year but the quality of traffic apparently is not high. Furthermore, gross and net home sales still are eroding and sales expectations of builders have not yet improved.

It’s increasingly obvious that the core problem for the housing market, the economy and financial markets is actual and expected declines in house prices.  This problem is symptomatic of stubbornly weak home buyer demand and an extremely large supply of vacant homes on the for-sale market, and the upswing in mortgage foreclosures in piling more and more vacant homes onto the for-sale market. 

This critical situation calls for government policies to stimulate home buyer demand and to stem the flow of foreclosed homes onto the market.  The Fed clearly is on the job, and major responsibilities also lie with other federal regulators, the Government Sponsored Enterprises, the Congress and the Administration.  The deteriorating market situation is forcing serious discussions on all fronts and some adjustments have been made, but the range and depth of policy responses has yet to be determined.

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