Housing market upturn does not a recovery make, analysts warn
Eric Beauchesne
Province
Existing home sales unexpectedly rose in the U.S., the result of improved affordability. Photograph by : Reuters File Photo
OTTAWA — A one-month rebound in the U.S. housing market doesn’t a recovery make, analysts warned yesterday.
But don’t tell that to investors who sent North American stock markets soaring in the wake of evidence suggesting that the bottom of the U.S. housing market recession may finally be in sight, and that U.S. financial markets may not be in as bad shape as feared.
JP Morgan Chase and Co.’s upping its bid for Bear Stearns fivefold to $10 US from $2 a share, plus an unexpected rebound in U.S. home sales last month more than offset widening acceptance that the U.S. is now in recession.
The latest acknowledgement was by Deutsche Bank AG, which said the U.S. economy slipped into a recession in the first three months of the year and will remain in one through the second quarter.
The stock-market rally, however, reflected optimism that the U.S. recession may not be as deep or as protracted as feared, which also fed into gains in the Canadian dollar, which rose just over one-half cent to 98.24 cents US.
The benchmark TSX index closed up nearly 250 points, led by gains in the banks, while Wall Streets’ blue-chip Dow ended the day up almost 200 points.
“Spurred on by improved affordability, U.S. existing home sales unexpectedly rose for the first time in seven months in February, up 2.9 per cent,” noted BMO Capital Markets economist Sal Guatieri.
The rebound was widespread, including both single-detached units and the more volatile condos — and in three of the four major regions — while there was also a reduction in new listings of detached homes, he observed.
“While the reduction in inventories is encouraging, one upside surprise in the housing market data isn’t proof of stabilization,” he added, noting that the level of unsold homes on the market remains at historically high levels, and that the focus will now be on other U.S. housing market reports today and Wednesday.
Still, some analysts said the report at least suggests the bottom of the sinking housing market is in sight.
“Overall, the mix of available sales, price, starts, and construction figures may finally be showing the long-awaited bottoming of sales volume that should allow some price stabilization by next year,” said Mike Englund, economist with think-tank Action Economics.
“This should reinforce a diminished downdraft in construction activity through the remainder of the year, and smaller associated subtractions from GDP growth following the hefty GDP hit projected for the current quarter.”
However, recession fears continued to weigh on oil and gold prices, both of which lost more ground following last week’s steep retreat.
TD Bank reported that last week its commodity index fell 4.5 per cent, the steepest one-week retreat since last August which was also broad based with prices for all 18 commodities losing ground.
And analysts who haven’t yet declared the U.S. is in recession, agree it’s beginning to look like the downturn looks to be a relatively mild one, likely between eight and 10 months long.
© The Vancouver Province 2008