“Been down so long, it looks like up to me,” sang Memphis bluesman Walter “Furry” Lewis.
The song was recorded in 1928, but Lewis may as well have been singing about the U.S. housing market circa 2010.
The headline on the latest monthly sales report for existing homes looks pretty good: traffic in September picked up a full 10 percent from the month before. On a percentage basis, the gain was spectacular – the biggest monthly increase in 28 years.
But that’s about as far as the good news goes.
The upturn – which still leaves home sales at levels 19 percent lower than a year ago – represents a snapback after a steep plunge this summer. After the government’s temporary tax credit for first time home buyers expired in June, existing home sales fell to the lowest level in 16 years.
With those tax credits gone, the housing market is again struggling against the headwinds of high unemployment, falling prices, a glut of unsold homes and a wave of foreclosures that shows little sign of letting up. Recent disclosures by lenders of a paperwork quagmire, along with an investigation by all 50 states into foreclosure practices, have further clouded the outlook.
Despite the September rebound, the annual rate of existing home sales was 36 percent below the peak pace in 2005.
“We doubt that (the September increase) is the start of a real recovery, which may now be further delayed by the foreclosure crisis,” said Paul Dales, U.S. economist at Capital Economics, in a note to clients Monday.
While sales bounced off summer lows, home prices have been sliding since June. Last month, the median sale price was $171,700, down 2.4 percent from the same month year ago. That’s six percent lower than June, 2010. With foreclosed houses weighing on prices, and millions more in the foreclosure pipeline, the price slump will likely continue, according to Dales.
“Prices will remain under downward pressure until demand moves back in line with supply," he wrote. "That's going to take years, rather than months."