Will Real Estate Finally Bloom
Come Springtime?

Investors might discover in the weeks ahead that calling a bottom in the housing downturn is a mug's game.

Until last week, it had been looking to some like a bottom might be at hand. Then Tuesday, Lennar Corp. said it expected to show a large loss on the back of land write-downs of $400 million to $500 million. The home builder said it has yet to see "tangible evidence of a market recovery." Thursday, the National Association of Realtors said its index of pending home sales, which is based on how many sales contracts have been signed in a given month, slipped in November. The Dow Jones index of home-building shares fell 4.3% last week.

This is a slow time of year for the housing market. Little wiggles in actual activity can look bigger after statisticians make their seasonal adjustments. A warm January can distort the view even more. Home builders say they won't know for sure if the downturn is over until the spring, when seasonal activity picks up.

Here is one reason to be careful about calling a bottom now. A large number of homes for sale are unoccupied.

In the third quarter, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all U.S. homes. The average in the 1990s was about 3.5%.

To get this ratio back to normal, 1.3 million vacant homes would need to be occupied. For comparison sake, economists polled by Blue Chip Economic Indicators expect construction to begin on about 1.6 million homes this year. With so many empty homes out there, one wonders why builders would bother breaking ground on new ones.

High vacancy rates have other effects, points out Credit Suisse analyst Ivy Zelman. When an occupied home gets sold, the seller has to buy or rent another house.

That sets off a chain reaction that ripples through the housing market. When a vacant home gets sold, the seller doesn't have to do anything.

The owners of those unrented, unsold homes bear costs. They have got insurance, the lawn guy, taxes and, often, a mortgage to pay. Seeing those costs pile up can motivate an owner to sell or rent at much lower prices. When a house sells at a lower price, other would-be buyers expect lower prices as well. When it rents for less, it becomes a more-attractive alternative to buying.

The good news (yes, there is good news) is that trouble in housing hasn't spelled trouble for the rest of the economy. Friday's jobs report showed that. Even though there was a decline in the number of construction jobs in December, a big pickup in service-sector jobs more than offset the drop. Wages rose, too. Meanwhile, low interest rates give households more buying power.

But the longer the housing funk lasts, the more likely its impact will spread. Here is hoping that in the spring there will be growth. Until then, be careful.

Email your comments to rjeditor@dowjones.com.