David Blitzer of Standard & Poor's Offers His Outlook on Housing
Tuesday, August 26, 2008JEFF YASTINE: Fresh data on the housing sector today and that picture is mixed. The Commerce Department reported sales of new homes nationwide rose 2.4 percent in July, less than economists expected. Meanwhile, home prices, according to the S&P Case-Shiller index, fell a record year-over-year 15.9 percent during June. And joining us now to analyze the outlook for housing is David Blitzer, chairman of the index committee at Standard & Poor's and David, welcome back to the program.
DAVID BLITZER, INDEX COMMITTEE CHAIRMAN, STANDARD & POOR'S: Good evening.
YASTINE: Toss us a bone of good news here. Is there any shred of good news, just a tiny bit in this data here?
BLITZER: Yes, there is some good news. It maybe a tiny bit. Home prices as you mentioned, continue to go down. But they're not going down quite as fast as they have been going down in the last few months. So we're beginning to see the rate of the Fed moderating a little bit which is really, hopefully the first signs of stability. As we look across the 20 cities we tracked, we see nine of those cities actually saw prices rise month to month. And in fact for the last three months we've have had seven to nine cities seeing prices rise. You go back more than three months and usually nobody saw prices rise; maybe once in a while one or two did. So the underpinnings are beginning to look a bit better.
YASTINE: Of course, this next question is a crystal ball question. But do you feel like there is a sense of a bottom here? Or certainly when I look at the home builder stocks, those have stopped going down. But what is your sense here on home prices?
BLITZER: I don't think we're quite at the bottom yet. I think we're beginning this process of, instead of the prices rushing even more this month than last month, they have sort of trying to catch their breath and still going down but at less rapid a pace and so on. Plus there's a clear schism breaking out in the country where the sunbelt continues to be devastating. The numbers coming out of the sunbelt continue to be shocking, home prices down 30 to 33 percent from their peak of a year or two ago. The rest of the country the numbers are not at all as shocking.
YASTINE: David, put some perspective in this for us. How much of what we're seeing is just your basic supply and demand issue and the overhang of so many foreclosures on the existing home market and how much does the problems that we see and we have the news on all the time here from Fannie Mae and Freddie Mac and the rest of the financial and loan situation that the regulators are still trying to struggle through?
BLITZER: What we're seeing is really the dark side of an incredible home price boom we had from 1998 or 2000 through the summer of 2006. Home prices did anything from doubling to tripling during that period of time, whereas in the previous hundred years they pretty much kept up with inflation. They never done a whole lot more for any sustained period of time. And all of a sudden they exploded upwards. Now we're in the dark side where we come down. The places where they went up the most, which is the sunbelt, they're coming down the most. Part of that explosion was euphoria from people thinking home prices would never go down, very low interest rates and a lot of creative mortgages. Ironically what Fannie and Freddie were doing at the time was probably looking at the better mortgages. Going forward Fannie Mae and Freddie Mac are a concern. Fannie Mae is going to keep part of the U.S. mortgage and home building infrastructure for literally six, seven, eight decades. And now they're now in some difficulty. It's going to be harder for them to support things going forward.
YASTINE: David, let me just interrupt for one second. Do we need to see stable home prices to get like a true turnaround in the U.S. economy and of course in the real estate economy itself.
BLITZER: I think we need -- there are really two keys to the U.S. economy over the next year or two. One is substantially better situation in housing. Stable home prices would be a good part of it. Working off the inventory getting all those foreclosures stalled. All of that needs to come together. Getting home construction back online. Housing starts are probably half of the long-term norm right now. The other half is in the credit markets without a doubt. The difficulty that started with the home prices and started with the decline of home prices have spread to a lot of other parts of the credit market and they have made people very reluctant to take risks, banks very reluctant to lend money. There is really a credit crunch and it is still there as seen in the Fed minutes that were mentioned earlier.
YASTINE: And a continuing story that we will be having to chat about through the next number of quarters. David, thank you for your time on the program.
BLITZER: Thank you. Good evening.
YASTINE: Our guest David Blitzer of Standard & Poor's.
