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Look Sharp: Home Sales Flat -- But Not Bottoming

It’s the last day of 2007, which means everyone and their broker are busy with predictions for 2008, but I’d caution you in using today’s numbers from the National Association of Realtors as any basis for prediction.

The flat sales number (up just 0.4% month-to-month) is not the sign of a bottom -- and if you don’t believe me, believe the biggest housing spinner on the planet, who couldn’t bring himself to use the word bottom today either.

Lawrence Yun, chief economist for the NAR:

"It’s difficult to say affirmatively whether or not we hit the bottom, but I can say most of the declines in existing home sales have likely already occurred and any further decline from this point onwards will be more minimal and at the same time we could see some unleashing of pent-up demand, early demand in 2008."

Ever the optimist of course, but thank God still something of a realist. The problems are prices and inventories: Prices still have far further to fall and inventories are still way too high for anyone to think that they’re going to do well selling their house. That means people are going to wait it out, which is precisely what they’re doing, and as prices continue to fall I think we’re going to see further declines in the sales numbers.

All the economists out there today are predicting where credit will go in the coming months, how the markets will factor in more of those subprime adjustable-rate resets, and how that will affect the price and availability of credit. But I’m going to be a bit more prosaic than that.

I’m tired of talking up all the macro numbers because I still believe that housing is a fundamentally, psychologically-based industry. Interest rates right now are still historically on the low side. The economy -- no matter all the hue and cry from Jim Cramer -- is not in recession, so most folks are still getting pretty good paychecks.

No, the bulk of the problem among buyers and sellers alike is fear. Fear of yet another unknown, like maybe Countrywide calling it quits or a major public builder throwing in the towel.

Okay, I know, it’s the big bad media instilling all the fear, but us aside, the housing numbers -- that is, sales and starts statistics, as well as earnings reports from lenders and builders -- are real, and that’s what’s keeping everyone at bay. Sellers are sitting, refusing to lower prices enough; buyers are sitting, refusing to catch a falling knife.

What turns it around? It won’t be another Fed cut, and it won’t be a settling in the credit markets.

Prices are going to have to come down far enough for people to think they’re getting good deals again. It’s up to the sellers to turn this market around, or at least turn back time to normal days when buying a house didn’t require taking out a risky loan that was never intended to be remitted. Those loans don’t exist, and those buyers don’t exist.

I’m looking forward to 2008 because this housing market is so, as my mother would say, fah-kahkta, that it is likely to bring ever more surprises, ever more innovations, and ever more lunacy. Who wouldn’t want to cover that?

Questions? Comments? RealtyCheck@cnbc.com

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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