IE 11 is not supported. For an optimal experience visit our site on another browser.

Investors learn to accept bad housing numbers

The housing market is still in bad shape, but investors don't seem to mind.
/ Source: The Associated Press

The housing market is still in bad shape, but investors don't seem to mind.

While this week brings reports on sales of new and existing homes in February, there are no signs of heightened anxiety in the stock market. That's a big change from one and two years ago, when these numbers were often horrific enough to send investors running. In recent months, traders have shrugged off some ugly figures. The reason: Steadying home prices are good enough for now.

Even tentative stability is welcome news after price drops of more than 50 percent in some markets. The slide in prices pounded consumers whose home is often their single biggest investment. The number of foreclosures is still going up, but they are happening at a slower pace. That's allowing the real estate market to absorb the added supply without sending prices spiraling again.

Many investors think that housing won't cause more huge problems for the economy if prices hold. The drop in prices is still hard on people who owe more than their home is worth, of course. But those problems are well-known to investors.

"That's not a new story," said Ashish Shah, head of credit strategy at Barclays Capital in New York.

That's helping investors to get past some bad numbers:

— On Feb. 24, traders pounced on a pledge of low interest rates from Federal Reserve Chairman Ben Bernanke and dismissed the Commerce Department's report that sales of new homes tumbled to a record low in January. Some analysts said the prospect of an expiring tax credit had pushed buyers to get deals done more quickly before the start of the year. The Dow Jones industrial average rose 92 points that day.

— Two days later, on Feb. 26, the Dow tacked on a modest 4 points after the National Association of Realtors said sales of previously occupied homes slid 7.2 percent in January. That was the second straight monthly drop. Economists forecast an increase.

Last fall, it was easier for investors to be rattled by a housing number. On Oct. 28, the government's report that new home sales dropped for the first time in five months sent the Dow down 119 points.

Housing could still bring new worries. It's unclear how prices will hold up when the homebuyer tax credit expires on April 30. And the Fed has said it will stop buying mortgage debt this month. The central bank has been making the purchases to help ratchet down mortgage rates and stir demand.

Shah noted that there are about 6 million homes in foreclosure or whose owners are several months behind in payments. He said government programs to forestall foreclosures have helped keep these homes from hitting the market. That's allowing prices to stabilize.

Shah predicts that about 2 million homes per year will go on the market in the coming years.

"We're going to go sideways for a while as we digest this overhang of supply," he said.

Analysts estimate that the recovery will be slow. Housing starts have increased in the past year but there are few buyers because tight credit standards are making it harder to get loans.

Just as in the housing market, the stock market can absorb hits if they don't come as a big surprise. But even with less bad news, few analysts expect housing will inject strength into the stock market anytime soon.

The existing home sales report is expected Tuesday and the new home sales report a day later.

Rob McIver, co-portfolio manager of the Jensen Portfolio in Portland, Ore., doesn't own stocks of homebuilders because he doesn't expect a sustained recovery in housing until the job market improves. With the job market still shaky, people won't have the confidence to buy a home. And many people still won't meet tighter standards for mortgages.

McIver said people buying their first homes are often hardest-hit by the recession because of their income levels. Those buyers form the base of the market and without them there can't be a solid recovery.

"We need to feel more comfortable that there's a real sense of security in the economy — and that means jobs growth — before you actually see the housing market numbers pick up meaningfully and sustainably."