A double dip housing market is when key market statistics such as home prices and sales decline for a second time after an initial decline followed by a rise. If plotted on a graph, housing sales and price numbers that experiences a double dip would like the letter W.
To be measured correctly, a double dip housing market should be measured well. Typically, economists gather and tabulate data for analysis which they may either determine as a double dip or otherwise. For example, a double dip housing market can be measured as an aggregate weighted average i.e. average of statistic totals in proportion to relevance in the housing industry.
Some housing metrics or measures include rising property inventories, lower building construction starts, decline in building permit applications, and in increase in foreclosures. Even if all these variables are not present, a double dip housing market can still occur.
• Large housing inventory
Housing statistics released by the U.S. Department of Housing and Urban Development (HUD) in August of 2010, revealed a supply of new homes that could last over nine months at the July, 2010 rate of sale. This number only reflected new homes and not pre-existing homes that would push the supply of homes even higher. With declining home sales, the potential for a rise in housing inventory increases as does the probability of a double-dip housing market.
• Sales of homes drop
Following expiration of the Government tax credit incentive to purchase new homes, the National Association of Realtors (NAR) claimed sales of new homes in July 2010, dropped below downwardly revised sales estimates and was lower than the same statistics for a year earlier. This drop in sales was a new 11 year low according to the NAR and provides basis to consider a double-dip housing market.
• Mortgage origination
In a June 2010 Keith Jurow report, the Real Estate Channel revealed government information indicating aggregate 2008 mortgages for the purpose of purchasing homes had dropped to levels not seen since the early to mid 1990s; this mortgage amount, approximately 3.5 million, marked a 4 year decline beginning in 2004. According to the Atlantic magazine’s Daniel Indiviglio, this number continued to drop into 2010 notwithstanding two spikes in originations in both years.
• New home construction
Another factor in forecasting a double-dip housing market is new home construction. When the building of new homes drops, then rises, and then drops again, this may reflect the market demand for new home. If the demand lowers as made evident by home sales data, then home builders may see little profit in continuing to build. From late 2008 to mid 2010 the Federal Deposit Insurance Corporation (FDIC) suggests residential construction resumed an upward trend. On July 20, 2010, Rex Nutting of MarketWatch reported an 8 month low in housing starts following the expiration of the home buyer tax credit. http://bit.ly/b1ynns
• Rising foreclosures
Home foreclosures are another catalyst for a double-dip housing market. Michael Gerrity of the Real Estate Channel, reported in August of 2010 that total non-seasonally adjusted annualized delinquencies and foreclosures were approximately 13.97 percent. Even though this was a small decline from the previous month, the total has been steadily rising from near 2.5 percent in 2006 based on data compiled by Kris Cyganiak in March of 2010 and published by The Online Real Estate Magazine Directory.
In the case of the U.S. housing market, a double-dip seems more like an extended decline as the general trend in the real estate market as a whole has fairly consistently dropped since 2004. Some housing markets statistics did indicate a recovery, followed by a decline, however in terms of weighted average market statistics, the argument for an extended collapse or contraction of the housing market may be more viable.
What will happen with the U.S housing market is a matter of economic conjecture and forecasting using market data that delves into regional, demographic, and economic statistics. Some fear that with weak unemployment and increases in foreclosures putting pressure on the U.S. economy and financial institutions, housing prices and sales will lack the strength to recover from their fall.
Sources: (Date of record September 16, 2010)
1. http://bit.ly/ANWQ (U.S. HUD)
2. http://bit.ly/9sE4JB (National Association of Realtors)
3. http://bit.ly/9bgTmD (FDIC)
4. http://bit.ly/cqw2tE (Real Estate Channel)
5. http://bit.ly/aVAcwJ (The Atlantic)