On the surface, 2008 seemed to end with more of the same — relentless bad news on the economic front:
- Newly-released data on home prices revealed that the year-over-year decline had reached record proportions
- Unemployment data showed more continuing claims for benefits than at any time since 1982
- The consumer confidence index reached its lowest level ever (the index began in 1967)
It looked like a week only the Grinch could love. But were there perhaps some signs of hope just below the surface?
Inside the Housing Price Data
New data for the S&P/Case-Shiller housing indexes were released, showing that through October both their 10-city and 20-city index had each suffered its worst year-over-year decline on record. With this news being released after desperate efforts by the government to revive the banking system and lower interest rates, it would be easy to think that housing prices were in a freefall, with nothing capable of stopping them. However, before coming to such a pessimistic conclusion, it is worth taking a closer look at the numbers.
The 10-city and 20-city indexes follow fairly similar patterns, so taking the 10-city index as an example, the headline news was that it declined a record 19.1% for the year ending October 31st, 2008. However, the worst of that damage was done in the first half of that 12-month period. Indeed, looking at the year ending October 31st, the first five months of that year were all worse for housing prices than the most recent month, and the decline for the first half of the year far exceeded the decline for the second half.
Make no mistake about it: a slowing decline is not the same thing as a turnaround. However, a slowing decline can be a sign that the market is reaching a bottom, from which a recovery may then ensue.
Perhaps the most important thing to remember about this latest housing data is that it reflects prices for the month of October. That was a month in which 30-year mortgage rates averaged 6.20%. Those same rates closed the year at 5.10%. In other words, this latest temperature reading on the housing market was made before the patient had even begun to take the medicine.
Joblessness and Consumer Confidence
As for the unemployment numbers, it is difficult to find anything optimistic about joblessness. However, it is worth noting that the post-1982 high represents continuing claims. New claims for unemployment benefits actually declined in the past week. What this means is that fewer people lost their jobs, though people who were already unemployed were having a tough time finding new ones. Also, to put the continuing claims number in perspective, the workforce is now about half again as big as it was in 1982, so the unemployment rate now is much lower than it was then.
Finally, regarding consumer confidence, the drop in confidence is understandable. This may not fit in with the “quick-fix” scenario favored by politicians, but if it reflects more cautious spending to reduce debt levels, it may fit perfectly with a more realistic scenario for a sustained recovery in the long run.
Meanwhile, anyone with solid employment and good credit is looking at an ideal buying situation: record low mortgage rates, and low but stabilizing housing prices.