The Unknown Future

With the latest reports of housing sales showing a decline, fear and trepidation of a “double-dip” housing recession are being stoked. The talk of doom and gloom, however, is overstated and unnecessary. After November’s statistics showing the highest level of existing home sales in nearly three years, according to The Associated Press, it seems reasonable that a correction ensued in the following month in the search for equilibrium. The world economy is, seemingly, emerging from a deep and prolonged recession. The recovery is unlikely to be smooth and steady. Already there are some promising signs, including improvements in retail sales, the stock market and manufacturing activity. Even this last indicator, as optimistic as recent reports may be, may take a similar tack to that of housing. The Institute of Supply Management reported this week that December domestic manufacturing activity expanded at its fastest pace in more than three years. It may follow that this same index shows a decline next month. Is this cause for concern? Not necessarily, as it again is a sign of searching for equilibrium after a protracted period of decline.

But, back to real estate, the winter months usually exhibit fewer home sales than other times of year. Weather, focus on holidays and families’ aversion to pulling children out of school mid-year all contribute to typically lackluster housing sales in last months and first months of any given year. The National Association of Realtors uses a “seasonally adjusted” index to account for this reality, but in times of extraordinary economic tumult, such an adjustment is too imprecise and broad to be fully relied upon.

Job losses have stemmed, savings rates have increased and spending has crept up. Even with a seasonal adjustment, it is not surprising to find that increased holiday spending, no matter how minimal, does not coincide with increased, or even “normal” or “adjusted,” home sales activity. Consumers spent some money over the holidays, but the shock of the past downturn and the familiarity and realities of friends, neighbors, family or even themselves having mortgage issues to contend with, means that they are not yet ready to commit to purchasing their biggest ticket item. Consumers have been, or are still, suffering from significant economic distress that is not easy to forget, even in a society usually short on memory.

There could well be a second drop in housing sales or values in the future, just as there may be a decline in spending or manufacturing. Nonetheless, raising fears during a delicate economic time is unnecessary and uninformed. Real estate, in general, is an imperfect science whereby analysis of past information is used to make guesses, and they are really nothing more than guesses, about the future. Like a stockbroker’s disclaimer, past results are not a guarantee of future success. Likewise, the realization that the outcome of this recession’s emergence is still being written should mean that statistics and analysis help explain where we have been, and not that the future has already been written.