CUNA economist advises Bloomberg about economy
NEW YORK (10/27/08)--The strength of the rise of existing housing sales accompanied by continued price drops announced Friday is “somewhat surprising, but it’s only one good number and we’re not out of the woods yet,” Credit Union National Association Senior Economist Mike Schenk told Bloomberg Radio Friday afternoon.
Schenk was interviewed on the nationwide broadcast about the Federal Reserve’s meeting next week, housing numbers and the broad economy in light of Friday’s market activity, which reflects the notion of global recession.
The prices “won’t fall a whole heck of a lot more to get the market moving,” he noted, cautioning it is “better to wait a month to confirm whether it’s a trend or an aberration.”
The National Association of Realtors had reported Friday that sales of existing homes jumped in September--up 1.4% from a year ago and the first time that sales rose compared to the previous year since November 2005 (CNN Money Oct. 24). It also reported prices were down.
Foreclosures are a driving force in the market but Friday’s figures reflect sales two months ago, he said. “A lot has changed.”
Schenk said he is not as concerned about prices as about consumer confidence. “That’s more bad news. It means it will be less likely that people will jump into the market.”
The length of the downturn is more worrisome than the recession, he noted. “The Treasury and the Fed are throwing everything at it to solve the (credit market) problem. If it works and eases up, the recession likely will continue to the middle of next year. And it will look like previous recessions but it won’t be a V shape, where you hit the bottom and then go back up,” he said.
As for access to mortgages, there are problems on both the supply and demand sides, he said.
“On the supply side are foreclosures but a bigger problem is that people expect prices to go down more. In the audiences I’ve presented to, almost all the hands go up when I ask if they expect prices to go down,” Schenk said.
“The opposite is true on the demand side. You wait. You sit on your hands. It’s not expectations but the pricing. The pricing is different, the underwriting is different and there are fewer speculators today. In the past 20% of the mortgage activity was speculation. It’s not there today,” Schenk said.