Deflatable Housing
No comments needed. Excellent summary of the current housing market.
If the U.S. housing market is not a bubble bursting, it is at least a boom deflating, as new data made clear today.New home sales sank 10.5% last month, the Commerce Department said, the biggest decline since April 1997 and far bigger than economists expected. The seasonally adjusted annualized rate of home sales was the slowest in nearly two years. Sales have fallen in four of the past six months. Meanwhile, the number of unsold homes on the market rose more than 4%, representing a 6.3-month supply, the highest in more than a decade. Unsurprisingly for anyone with a vague knowledge of basic economic principles, rising supply and falling demand means new-home prices are falling. The median price for a new home fell for the fourth straight month to $230,400, nearly 3% lower than a year ago. It was the first time prices have fallen on a year-over-year basis since December 2003.
New-home sales make up less than 14% of the total housing market; pre-owned homes make up the rest, and they rose solidly last month. But new-home sales are typically a leading indicator of housing trends, while used-home sales are lagging. And last month's strength in used-home sales was likely the aftereffect of January's temporarily warm weather and lower mortgage rates.
Some observers worry that rising mortgage rates will hurt the housing market; they certainly won't help. The Federal Reserve is almost certain to raise short-term borrowing costs next week and could raise at least once more by May. That has no direct impact on 30-year mortgage rates, but could possibly make adjustable-rate and more exotic flavors of mortgage more expensive.
But one reason housing is slowing down already, even with borrowing rates still relatively low, is that many houses have simply become unaffordable to many buyers. A strong economy and job market will keep some buyers in the game, but a slowdown in housing is likely to hurt the economy. The only question at this point, it seems, is whether the housing slowdown will be gentle or screeching. Most economists are in the gentle camp, but a few are not. One of those self-described "uber-bears" on housing, Ian Shepherdson of High Frequency Economics, called today's report "awful, but not yet a convincing collapse." Comforting.
By MARK GONGLOFF, WSJ.com
Foreclosure Surge
Not a good sign. But I knew it was coming. And it's only going to get worse in the years ahead.
Do you know how to get information about the foreclosures in your area? Is there a website for that purpuse (I'm sure there is). I'd like to get access to that. I think it might be a good way to snap a bargain (not now, but in a year or two).
In January, 103,540 homes were in foreclosure, up 27% from 81,290 in December and 45% above last year. January's foreclosure total was the highest level since RealtyTrac began releasing monthly reports in May 2005.
January's 27% increase in foreclosures is consistent with the increasing foreclosure trend seen throughout 2005. In total, nearly 847,000 properties entered foreclosure in 2005, representing 0.7% of total households. This is still below the historical average of approximately 1%, according to RealtyTrac.
In our opinion, the recent sharp increases seen in foreclosures are indicative of the heightened leverage taken on by home buyers through the past several years of robust price appreciation and record-low interest rates. In addition, we expect the proliferation of adjustable rate mortgage (ARM) and interest-only mortgage products tied to the short end of the curve to provide an additional headwind as short-term interest rates continue to increase. For 2006 year-to-date, on average, the one-year ARM is 132 basis points higher than last year.
Reference
Foreclosure Surge Indicates Home Stretch, Barron's Online, INVESTORS' SOAPBOX PM (Need subscription to access)
Housing Market: Recovery or last gasp?
I'm a bit worried about the housing market. You probably know that I'm not buying a house at these prices, especially in the NJ area. But I'm worried that the buyers are over stretching themselves, and when the interest rates rise (a little more), many of them will not be able to pay for their mortgage. As a result, the pool of buyers will shorten. As a result, the whole economy might suffer. That's what I'm worried the most. But like I said, this frenzy cannot continue, and will not continue, forever. Every bubble inflates to the point when it bursts. Hopefully, it will only be by a slow deflation...
There is an interesting article on Economist.com (one of my favorite magazines; recently subscribed to it), about the housing market in US, and in other parts of the world. I have some interesting excerpts from the The Economist article, Miraculous recovery or last gasp?.
If the housing market does turn sour, it would be bad news for the American economy, as it has been for the economy in Britain, where the recent slowdown has been partially attributed to a weak housing market. In both countries, consumers have become dangerously dependent on strong house prices to keep them feeling wealthy enough to spend. Housing markets may be the canaries that signal the fate of the broader economy. And, as any miner will tell you, canaries don稚 live all that long.
Reference
Miraculous recovery or last gasp? -- The Economist
Housing Slowdown
Housing is slowing down. No question about that: inventories are rising and sellers are having harder time selling. It's becoming a buyer's market. The following two quotes from WSJ by Justin Lahart give you a very good summary of the current housing market.
The question is no longer whether housing is slowing, but how severe the slowdown is going to be.
Still, a steep price decline is unlikely. Home builders, like sellers in general, will be slow to lower prices, opting instead to hold on to inventory in hopes of an eventual buyer.
Reference
* Investors Retreat From Housing Market -- FREE from WSJ.com
* Cracks in the Foundation by Justin Lahart, WSJ.com (need a paid subscription)
Real Estate Begins to Cool
More signs point to a slowdown in real estate: mortgage rates up, inventory up, time to sell up, prices paid (down?).
Reference:
Real Estate Begins to Cool by The Big Picture blog
Real Estate Begins to Cool - Follow Up
Related:
Rise in Supply of Homes for Sale Suggests Market Could Be Cooling by WSJ (need subscription)
Housing Bubble
Are we experiencing a housing bubble? Overpriced houses? A lot of speculation. I think so. I think this craziness has to stop sometime -- especially in the NJ area. That's what I think. See what Celia Chen, from Economy.com, has to say about the housing bubble in this article, U.S. Bubble Trouble. She does not say the bubble will burst, but she sees the housing market cooling considerably if the rates move up to 7%. Also, she explains the effects of the bubble actually bursting. Very good article.
