by Calculated Risk on 2/25/2005 02:34:00 PM

After a few posts of Gloom and Doom, here are a few positives on the housing market:

From "California January Home Sales" we learn that "Last month was the strongest January in DataQuick's records, which go back to 1988." Also:

"Market stress indicators are still very low: Down payments are stable, speculation buying is moderate, there are no significant shifts in market mix and default rates are low. A recent rise in ARM usage has leveled off. Earlier increases in non owner-occupied purchase activity and flipping activity have leveled off."

And this AP article: "Existing Home Sales Slip in January" was actually positive despite the headline.

"Realtors chief economist David Lereah said even with the small overall decline in sales, demand for homes remained strong. In fact, the supply of homes fell to a record low of 3.7 months, the amount of time it would take to sell all of the homes on the market at the January sales pace."

And finally I'd like to point out the Fed paper by Jonathan McCarthy and Richard W. Peach last year that asked: "Are Home Prices the Next 'Bubble'?" The authors concluded:

"Our analysis of the U.S. housing market in recent years finds
little evidence to support the existence of a national home price bubble. Rather, it appears that home prices have risen in line with increases in personal income and declines in nominal interest rates. Moreover, expectations of rapid price appreciation do not appear to be a major factor behind the strong housing market.

Our observations also suggest that home prices are not likely to plunge in response to deteriorating fundamentals to the extent envisioned by some analysts."

I agree that we are not likely to see a "plunge" in prices; Real Estate prices are sticky and they tend to slowly decline during a bust. Besides I'm more concerned about a slowdown in volume that would impact employment than a "bust". And I disgree about pricing; I think we are seeing a housing bubble.