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July 2nd, 2010

Summer Doldrums Worse Than Usual This Year

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The summer months always tend be slow(er), at least as housing is concerned. After the spring home-buying season, real estate activity slows, people take vacations, go away for long weekends. Instead of worrying about house hunting, borrowers are more concerned with barbeques, content to push their buying decisions down the line a few months.

“Summer is generally a lazier time of the year for borrowers,” said HSH VP Keith Gumbinger.

However, given the slew of negative economic reports we’ve seen over the last few weeks, the evidence suggests that this summer season may be even slower, even quieter than many in the past; and that has to do with a lot more than just housing.

Poor Home Sales, No More Stimulus

Let’s start off with what we already know: summer is a slow period for real estate activity to begin with. Yet, given the fact that the homebuyer tax  credit has borrowed from future demand, it stands to reason that home sales will be even more anemic than in the past. May’s home sales numbers support this theory and June’s probably will too.

In April, the last month borrowers had the chance to cash in on the homebuyer tax credit, home sales were up all around. Come May, new-home sales declined to record lows:

May’s new-home sales report added to the concerns of industry insiders and experts alike in a major way. The record-setting drop of almost 33% last month was, like the existing-sales report (see below), a surprise to some analysts. While the overall opinion was that sales were going to falloff after the tax credit was through, the abrupt and massive nature of the decline was the bigger shock.

Employment Numbers

Despite the addition of 433,000 jobs in May (revised slightly upward), June’s employment report was quite the opposite. According to the labor department, non-farm payrolls fell by 125,000 last month, the first month of negative job growth all year. The massive falloff in hiring was mostly due to government census workers.

The one bright spot (if you can even call it that) is private payrolls grew by 83,000 in June. However, as Ezra Klein of the Washington Post noted on Twitter this morning, “I don’t take comfort in the fact that non-census payrolls grew[...] Census jobs were still jobs. And now those people are unemployed.”

Production Growth

Up to this point, production was one sector of our economic output that was keeping us afloat. While the GDP numbers haven’t been fantastic in 2010, production has played a large part in keeping the country’s GDP in the black.

Manufacturing growth has spurred economic activity because of “inventory rebuilding” after deep drawdowns during the recession. Yet with a weak consumer and now the additional headwinds of continued overseas turmoil, even our economy’s most stable output has a taken a hit, and will likely struggle through the summer.

Where Do We Go from Here?

With all this speculation, with all this uncertainty headed into the rest of the summer (and the year for that matter), we ask, “Where do we go from here? What is it going to take to get us moving again?”

We’ve had a $700 billion stimulus package that, up to this point, hasn’t generated significant growth. Beyond low mortgage rates — which are expected to create at least some homebuying/refinancing activity — there are no supports in place for future homebuying.

What is it going to take to get us out of this hole — more credit? Is cheap and easy credit the solution to the problem that was caused by cheap and easy credit?

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3 Responses to “Summer Doldrums Worse Than Usual This Year”

  1. Lucia Says: July 6th, 2010 at 3:53 pm

    I think it will take time for the consumer to adjust to a more frugal lifestyle and a slower economy. Those without a job may finally relocate for work elsewhere even if they can’t sell their home yet. Others may see a niche market in their community and fill it, forming a new small business for themselves. But as long as businesses fear increased penalties in the form of regulations, health insurance premium and taxes, they will stay hunkered in survival mode. Government should get it’s boot off the neck of small and large businesses.

  2. Tim Manni Says: July 6th, 2010 at 4:31 pm

    Lucia,

    Great comment, thanks. I have also wondered why Washington hasn’t stepped up its support for small businesses so they can begin hiring. Also, like you mentioned, I wonder when we’ll begin to hear about the unemployed moving in order to find work. I guess that will happen on a broader scale as soon as federal unemployment benefits run out. Hopefully the economy is on solid ground by then.

    Thanks,
    Tim

  3. Visionary Realty News » A Week Full of Tax Credit Information for Buyers Says: July 6th, 2010 at 8:08 pm

    [...] weren’t able to agree on the extension of unemployment benefits before their July 4 recess. “Summer Doldrums Worse Than Usual This Year“: However, given the slew of negative economic reports we’ve seen over the last few weeks, the [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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