Ben Bernanke stated on June 7th, 2010 that the United States would not experience a double dip recession. The country was out of recession and consumer spending/business investment was up. Mr. Bernanke would have been correct if the statistics were not being manipulated.
The pending home sales in December 2010 unexpectedly went up. No one questioned the data and the stock market was on the move partially based on this report. This was part of the good news which was being explained as the housing market continued its decline in both sales and pricing, one pundit explained the correction as a “price reset”:
So really, what we’re seeing now isn’t a double dip, but a delayed continuation of the home price reset that began in 2007. The home buyer credit never allowed the housing market to hit its natural bottom. Now that it is not longer in place, prices can decline to reach a stable floor.
The report today for pending sales of existing homes had two pieces of news which should not be ignored. The sales for January pending home sales fell by 2.8% instead of the expected 2.3%. That is a decline of over 21% from what was expected. However the important news that will be under reported is the “revision” of the December information. The unexpected good news for the December pending home sales was revised from a positive 2.0% to a 3.2% decline. This represents a change of 260% downward which is statistically impossible since the data is relatively fixed. Even a significant amount of outliers would not account for this deviation.
The United States is now in a double dip housing recession and the news will not improve with higher interest rates on mortgages and the elimination of the government subsidy (taxpayer redistribution) for first time home buyers last year. The only bright spot is the cost of housing: it is rapidly declining and will continue to decline. This is only a bright spot for the buyers. People who are selling their homes are forced to choose between foreclosure, short sales or a large loss of what they had previously considered to be their largest investment.
With rapidly rising prices for gasoline and food, our entire economy will soon be classified as having entered a double dip recession. That is true only if you accept the premise that we were out of the recession as Mr. Bernanke stated last year.
The number of Americans signing contracts to buy previously owned homes fell in January, a sign the industry that triggered the recession was struggling at the start of 2011.
The index of pending home resales dropped 2.8 percent after a revised 3.2 percent decrease the prior month that was initially reported as a gain, figures from the National Association of Realtors showed today in Washington. The median estimate in a Bloomberg News survey of economists called for a 2.3 percent decrease.
Foreclosures that are driving down prices and unemployment at 9 percent signal the housing market may not make much headway this year. Interest rates that are rising pose another challenge to real estate, which may lag behind the rest of the economy this year.