Why Housing Is Going Through a Double Dip

AP

The sales pace of newly built homes is now at the lowest on record.

Sales dropped nearly 17 percent in Februaryafter a big drop in January. Put that on top of the nearly 10 percent February drop in existing home sales reported earlier this week and the incredibly low level of mortgage purchase applications, and you get a clear case for a double dip in housing.

Remember, this number from the Census is based on contracts signed in February, not closings, like the existing home sales number from the Realtors. That means it is a real indicator of how the Spring market is starting.

"Further, the plunge in new home prices [down 8.9% year over year] does not bode well for existing sales prices in February, which will close in March and April and be reported by NAR in April and May," notes analyst Mark Hanson.

I really don't have to tell you that, since the vast majority of you voting on the blog cast the double-dip vote yourselves.The question now is: How long will it last? As I noted yesterday, more than a hundred economist and housing types surveyed by MacroMarkets said there would not be real recovery in housing until 2013.

CNBC Investor Guide to Spring Real Estate 2011 - See Complete Coverage

I want to talk pros and cons.

The pros are that the job market is slowly recovering. Jobs are key to housing, and while employment isn't going gangbusters, it is at least going in the right direction. Another pro, though not for builders, is that housing starts are still really really low, which will help existing home sales, the bulk of the market.

"It allows the market to further purge itself of the inventory of existing homes as we don't need more new homes right now," notes Miller Tabak's Peter Boockvar.

Another pro: Affordability.

It's better than it's been in a long time, and with supply as high as it is, buyers can negotiate great deals on organic and distressed properties alike.

Low mortgage rates. Yes, it's super hard to qualify, but at least we don't have a rate spike...although that depends entirely on quantitative easing's future and new risk retention rules, so stay tuned on that.

Unfortunately the cons are going to prevail for a while:

1. Supply supply supply. Too much. Can't overstate that.
2. Foreclosures. Banks are pushing properties through the foreclosure process at a really rapid pace now. I'm also hearing they may be ramping up sales ahead of any settlement with nation's attorney's general over the so-called "robo-signing" paperwork scandal. More foreclosures on the market means more supply and more price pressure.
3. Gas prices: See yesterday's blog post. It's real.
4. Mortgage applications. They are way below historical norms. All cash buyers in February rose to a record 33 percent of all buyers of existing homes. Many many Americans simply can't qualify for a mortgage anymore at a reasonable rate.
5. FHA: Next month the cost of an FHA loan goes up yet again. FHA loan volume dropped 26 percent in February month to month.
6. Consumer sentiment: Awful. No confidence in this market. Only the investors are out in droves, looking for and getting bargains. We need them, but we need real buyers as well.

You think I'm a bear? I'm a realist. I've been warning of a double dip for months, as many of you 'disagreed' with me on the blog. At the turn of the year, hearing about some energy in the market and some improving sales numbers at least, not prices, I tried to look at the bright side; perhaps things were improving with more jobs and more buyer traffic? You all didn't seem to like that either. Well I'm calling it like I see it now, and I see a double dip.

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