Housing Double-Dip Looms After Round Of Weak Data

New housing market data suggest the housing market may be once again headed for trouble, making the recovery in the larger American economy even more tenous.

The one bright spot for the housing market from this week -- sales of newly built homes were up 17.5% in December according to the Commerce Department's numbers -- is undercut by a sharp drop in the number of mortgage applications over the last three weeks.

On Tuesday, the Standard & Poor's/Case-Shiller index, which is widely considered a gauge of the housing market's health, indicated that home values are dwindling in nearly every American market. From the AP:

Prices fell in November in all but one of the 20 cities in the Standard & Poor's/Case-Shiller index released Tuesday. Eight of those markets hit their lowest point since the housing bubble burst.

The damage from the real estate bubble has spread well beyond Las Vegas, Phoenix and Miami, which built frantically during the mid-2000s, and is sapping prices from coast to coast. In many places, prices are expected to keep falling for at least the next six months.

Additionally, many analysts attribute the December jump in sales, which was concentrated on the West coast, to a rush for home buyers to beat the deadline of a tax credit set to expire in California.

"The impressive increase in new home sales in December is mainly due to the rush to beat the deadline of a tax credit in California," Paul Dales, an economist at Capital Economics wrote in a widely circulated email. "Without that boost, new sales would have been broadly unchanged. Moreover, new sales in California will probably fall this month, dragging down overall sales."

The research division of Goldman Sachs was likewise skeptical of whether the December boost signaled an improved market. From a report released yesterday:

Following a long streak of disappointing data, housing market indicators have recently looked somewhat better. In particular, existing home sales showed substantial gains in December. During the last few weeks, however, the number of mortgage applications has declined sharply--by a cumulative 14% during the last three weeks.

The report went on to suggest that this drop in mortgage applications may indicate bleak months ahead:

The number of mortgage applications, however, has declined sharply in recent weeks. Specifically, the volume of mortgage applications for purchase--reported in a timely fashion every week by the Mortgage Bankers Association--declined by a cumulative 14% during the last three weeks. Does the decline in mortgage applications suggest that home sales are set to decline again in coming months?

All this seems to suggest that a double dip in the housing market could be at hand. David Blitzer, chairman of S.& P.'s Index Committee, told the Washington Post that these latest numbers suggest "that a double dip could be confirmed before spring." From the Post:

This "double dip" in real estate represents one of the worst fears of housing analysts and is developing just as it appeared that the overall economy was recovering. For now, many economists expect prices to keep slipping at least through the first half of the year, dragged down by the nation's large volume of foreclosures and high unemployment rate.

"The upshot," Paul Dales wrote, "is that December's new home sales data provide a misleadingly optimistic picture of demand for new homes. At best, the underlying trend remains flat. New home sales will probably rise this year, but only gradually. It's still not a very good time to be a homebuilder."

As the NYT put it on Tuesday, "Whether the long-predicted double dip is looming or has already arrived is a quibble of semantics."

"We shouldn't kid ourselves," Blitzer told the Times. "The last few months have been weak."