May Housing Spasms

by George Rosenbaum
Will May be the cruelest month for sellers of residential housing?

Contact the principal investigator- George Rosenbaum (georger@8sages.com) with your questions, comments or request for the updates on this topic.

The size of market for residential housing is now fluctuating so rapidly that decisions based on forecasts – assuming that what was will be – are no longer trustworthy. Given the convulsive market moves, we are launching a periodic report on the state of the housing market, based on over thirty years of monthly consumer tracking by Leo J. Shapiro & Associates. The U.S. housing situation in May 2007 is explained in this report.

MAY 2007

The percent of consumers planning to buy a home this year surged from 11% in January to 17% in February (within a point of a two-year peak), only to plummet to 13% in early March holding steady at 13% in April and May.

Urgency to follow through on plans to buy and to actually consummate a purchase is gauged by measuring the percent of consumers who are actively shopping for housing – reading advertising, checking prices, and touring homes. In step with purchase plans, the percent of consumers actively shopping for housing doubled from 6% in January up to 12% in February and then fell back to 6% in March and 8% in April and __% in May.

In line with the surge in shopping activity in February, the press in March reported that housing sales were up in February. Given fewer consumers in March, April and May planning housing purchases and shopping actively for homes, the press in June will report that sales of housing in May have not recovered and remain below the February level.

Consumer decision to actually buy housing – rather than just plan or actively shop for housing – is subject to how they feel about their family’s finances. Americans are a nation of bookkeepers. They note all transactions and keep a running balance between their debts and spending relative to their assets plus income. A decision to actually buy housing – which generally requires taking on debt – is subject to consumers’ satisfaction with their family’s balance sheet.

Shapiro measures consumer satisfaction with their finances monthly and computes an Index that tracks satisfaction with the household’s balance sheet. The January to February surge in buying plans and active shopping for housing is mirrored by a corresponding surge from 105 to 109 in the Shapiro Index of Consumer Balance Sheet Satisfaction. The February to March decline in purchase intention and in active shopping is mirrored by a month-to-month decline, from February’s 109 to March’s 103, and to 100 in April and __ in May in the Shapiro Index of satisfaction with their finances. Although active shopping for housing holds steady between April and May, the Shapiro Index of consumer satisfaction with their finances drops five more points in May, suggesting that active shopping for housing will result in fewer sales in May.

Percent of U.S. Consumers Planning to Buy a Home; Percent Actively Shopping; and Index of Satisfaction with Household Financial Balance
  2007
  January February March April May
Planning to buy home (%) 11 17 13 13 13
Actively shopping for home (%) 6 12 6 8 8
Satisfaction with household's financial balance (INDEX) 105 109 103 100 95

The withdrawal of consumers from housing purchases following February puts increased pressure on the price of homes and indicates that the pace of home sales has been receding since the February surge.

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