The National Association of Realtors (NAR) announced today that November existing home sales were up .4%, the first such increase in nine months.  This is the second positive report from November’s housing market as last week it was reported that foreclosures fell 10% during the month.

While these two positive data announcements have helped improve housing sentiment heading into 2008, the NAR says existing home sales are down 20% from the same point last year, and median home prices have fallen 3.3% in the last twelve months.

The drop in home prices on the year has not only impacted resale opportunities for home sellers, but it has also contributed to the related struggles in the mortgage markets.  Many borrowers, struggling with adjustable rate mortgages or higher rate mortgages, have been unable to refinance or make use of home equity. 

As home appraisals come in lower, the equity available when subtracting mortgage balance from home value diminishes.  This reduces the amount banks are willing to lend through home secured loans.  Most banks and creditors use loan-to-value ratios to determine amounts to lend and rates.  Thus, in a better market, sub-prime borrowers might have been able to refinance to conventional loans.

Although housing market numbers have stabilized somewhat the last month or two, and foreclosures seem to be leveling, many Americans are still concerned about what 2008 will bring.  Generally, an ability to stabilize consistently for a period of time is a good sign that bottoms are being reached or neared in struggling financial markets.  Definitely, the fact that existing sales numbers and foreclosure rates have flattened and improved modestly in the last month is positive.  If this continues for a few months people may get excited, which could lead to a build of investment and buying momentum.

US equities and investment markets have been fairly flat as well in the last month of 2007.  The Dow reached a record just above 14,000 a few months ago and dropped back below 13,000 for a few days.  Throughout most of December, it bounced around between 13,000 and 13,700 depending on financial and sub-prime news and housing market reports.

Investors are hoping the Fed will continue to lower rates as 2008 gets underway.  Some economists have called for an aggressive move that eventually brings the rate to 3.25%, another one percent drop from its current position.  At some point during the year, we should also begin to see if the government intervention in the sub-prime market helped spark drastic slowing of foreclosures and delinquent payments.

Disconcerting to some is initial reports from some top retailers, including Target, that the holiday shopping season did not produce strong results.  Many retailers are expecting to report lower numbers from last year.  Investors will be anxious to see monthly and quarterly reports during January and February.  Some financial prognosticators have suggested that if consumer spending and confidence show signs of turning negative, a shaky market could move fast with fear, especially if housing and mortgage numbers do not improve.  Recession concerns have been expressed by some.

Questions remain in other financial markets as well.  Oil and gold prices are near record highs.  Oil finished is currently above $95 per barrel, and saw about a 60% increase on the year.  It seems likely that oil will cost over $100 per barrel at some point during the New Year.  Gold is near its all time record in US dollars since it was first floated against the currency in 1971.  Many investors are turning to gold as a safe monetary investment while the dollar struggles.  The dollar has increased its position a bit in the last few weeks of the year against European and other major currencies.  It is currently netting 1.4588 Euro.

Although James Turk and other leading economists suspect a dollar collapse is coming, stable housing and mortgage markets and positive corporate data could make the dollar a good investment for bargain buyers.  If the US economy turns around, the dollar becomes more favorable.  As we enter 2008, the all the major financial markets seem poised for a move of some type.  As 2007 will be remembered for its significant moves, 2008 may be more impacting on the long-term implications in housing, mortgage, currency, and more.

Market Recap

The US stock markets finished the last trading day of the year down on Monday.  The Dow finished down 101 points or .76%.  Since the only significant market news today was an increase in existing home sales, the selling was likely related to concern over develops heading into the New Year, and people liquidating for tax purposes.  Although, the Dow is down over 800 points from its record high above 14,000 earlier in the year, it did manage over a six percent increase on the year.  This puts back into light the strength of the move during the first half of the year, considering the concern in housing and mortgage of late.  Oil prices finished up about 60% on the year.

Neil Kokemuller
Thursday, December 31, 2007
3:55 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA.  He has a MBA from Iowa State University with a specialization in marketing.

Please note:  The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments.  Actions taken on the basis of the information shared is at the sole risk and discretion of the individual.