National home prices are likely to fall below where they were in late 2005, the chief economist for the National Association of Realtors said Thursday.
The same trend could occur in the Bay Area, local experts said, reflecting a broad-based market shift in which homes for sale generally outnumber eager buyers.
“I wouldn’t be surprised if we saw a drop in prices of 10 or 15 percent by the end of the year, from the peak,” said Edwin Resuello, president of the Santa Clara County Association of Realtors, referring to home prices countywide.
The cooling housing market and a softening of capital spending will bring a slowdown in U.S. manufacturing activity next year, according to a study released by an industry trade group on Thursday.
… “The housing market has turned, it’s going to be down this year and even down more sharply next year,” Dan Meckstroth, chief economist of the Arlington, Virginia-based trade group, told Reuters.
U.S. stocks dropped for a second day after two homebuilders cut their earnings forecasts, fueling concern that the housing slump may curb economic growth.
…But the peak has passed, and the consequences of the deflating bubble are buffeting the housing market, in Washington and across the United States.
What sold in a weekend here last year is taking months to unload. And increasingly nervous home sellers are slashing prices to get rid of properties before their value sinks even further. One buyer recently threatened to walk away from a signed contract on a $1.6-million house unless the seller took $100,000 off the price to reflect the drop in value since the deal was struck. The seller quickly buckled, fearing the house might be worth even less if put back on the market today.
“Look how fast prices were going up. The same thing is happening on the way down,” observed Ms. Gaus, who’s been selling homes in Potomac for 16 years.
‘The Wheels Are Coming Off’ – a terrifying roundup of the problems battering housing, including a reference to Bloomberg yesterday, U.S. Home-Price Gains Slow as Housing Slump Deepens,
U.S. home-price growth slowed during the second quarter from a year earlier in the sharpest three- month plunge on record, according to a government report issued today that indicates this year’s housing slump is deepening.
“The wheels are coming off the housing market,” said Scott Anderson, an economist at Wells Fargo & Co. in Minneapolis. [emphasis added]
Keep in mind, this is only the very start of the popping of the housing bubble. It’s only just hitting the news in a way that spreads out to the broad public. It is only after it becomes generally understood that housing prices are not going up anymore and people take price appreciation out of their buying calculation that we will start to see real changes. Prices have a long way to fall before things get back to normal.
All eyes will be looking at Tuesday’s release of the Office of Housing Enterprise Oversight home price index, which will cover April-June. Home price data takes center stage this week,
Home values are critical to the economic outlook. Economists disagree about how the housing slowdown will impact consumer spending.
The rise in home prices has been an important driver of consumer spending. Many consumers have been refinancing their mortgages based on the higher home values and using the cash to finance purchases.
… On a national average basis, home sales have not fallen in any year since the late 1940s, said Berson. There have been some quarterly declines, and prices have been down annually in some regions.
Estimates are that it will show a slowing in the rise of prices.
This month’s figures prove that the so-called “housing bubble” is not only real, but that its cratering faster than anyone had realized. As the UK Guardian reported a couple of days ago, “the orderly housing slowdown predicted by the Federal Reserve will (soon) become a full-blown crash.”
To hear the real estate agents tell it, the housing market has “lost steam.”
What they really mean, of course, is that it’s hit a wall – though you won’t get them to admit that publicly. And from all indications it’s not going to improve any time soon.
Housing headlines are dominating the news these days in the same way the Nasdaq did in the late 1990s.
And no wonder. Successive years of sizzling sales and spectacular price appreciation have given way to falling sales and starts, record inventories of unsold homes (new and existing), a plunge in housing affordability and a flattening out of prices on a nationwide basis. The residential real estate market may never match the Nasdaq’s vertiginous 78 percent decline from the 2000 top to the 2002 bottom, but it is captivating potential sellers, late-to-the-party speculative buyers and analysts looking to assess the impact on the overall economy.
… One area that has received next to no attention is the risk to the banking system, which, like everyone else, got caught up in the housing-market froth, extending credit seemingly without much due diligence. [emphasis added]
Just after posting below I came across this: Stephen Roach: Bursting Housing Bubble A Very Big Deal ,
If the US consumer slows, the demand expectations that typically drive capital spending will also weaken. So, too, will the growth dynamic of America’s export-led trading partners — thereby undermining support for US exports, as well. In short, for a wealth-dependent US economy, the bursting of another major asset bubble is likely to be a very big deal.
When the air is expanding inside a speculative balloon, stretching the film of credibility that contains it to an ever-more improbable thinness, you can always find someone to explain why this time it’s different — why technological/demographic/astrological factors justify valuations today that have always proved historically unsupportable.
Until the bubble actually starts to deflate or burst, there’s just enough doubt about whether prices really will revert to their historical mean to keep us all guessing. Even the most convinced sceptic can never say with any certainty when a bubble will collapse, and so the science of identifying bubbles is an inherently retrospective activity.
But it looks now as though we can say with some confidence that the long American housing bubble is over.
So what might happen next?
All of a sudden, lots of bad news. Except that some of us have been talking about what’s coming for some time now. The signs were all there.
How much of the seeming prosperity of recent years was based on borrowed money? People were refinancing their houses as prices rose, and using the money to buy SUVs, etc. But now we have the opposite situation – these people now owe that money yet prices are falling. And with prices falling few new people will be refinancing. Meanwhile the government has borrowed massive amounts of money and pumped it into the economy – something usually done only to get us out of downturns – so if there is a downturn they won’t be able to borrow money to pump into the economy. Bush has used up that trick during the good times when we should have been paying off debt. (Clinton paid off debt, which is what allowed Bush to borrow so much…)
Here are a few of today’s stories:
How a Housing Slowdown Will Cause a Recession
The news has been universally bad: inventories are rising to 10-year high levels, buyers are already saddled with massive amounts of debt, homebuilders are cutting profit projections and overall investment is negative. And here is more from Nouriel Roubini: housing is already in free fall and will cause a recession by the summer of 2007.
It’s becomming “the story.” This has to go on for a while, for the news to filter out to “the masses.” In a few weeks it will be generally understaood that housing prices are heading down. Next will be stories about how fast prices are dropping, and then about people being hurt by this. Each will feed the next phase.
Selling In Slowing Housing Market, Expert Offers Uncommon Tips To Help – CBS News
How do you know how to price your house? Fletcher says, “Look at what other similar houses in the neighborhood are selling for and then set your price at 10 percent under the market.
If you want the house to sell, price it lower than the last one that sold. This is necessary – if you want to or have to sell – but feeds the drop.
Washington Post: New-Home Numbers Add to Housing Woes
New-home sales fell more steeply in July than economists forecast, and the number of unsold houses climbed to a record, deepening a slump in an industry that fueled economic growth for five years.
New York Times: Housing Reports Reveal a Slowing Market
A backlog of unsold new homes continues to pile up. Last month there were 568,000 new homes on the market — enough that it would take 6.5 months to sell them all at the current sales rate. That is the most in more than a decade.
In science you study what happens. In ideology you talk about what you wish would happen. One DEscribes, the other PREscribes.
The Wrath of the Free Market God takes a look at what actually happens when right-wing economic ideology is implemented. Enron, concentration of wealth, corporatization and the Dubai Ports deal.
Make no mistake what is happening. The Globalists are attempting to replace the nation/state with corporate hegemony. In many respects they have already succeeded. Our democracy has been subverted not by dictatorial government takeover, but by the stealth usurpation through a shadowy pay to play scheme. Instead of the traditional coup by military means, an army of corporate lobbyists has descended upon Washington with decidedly similar results.
Now, to be fair, I will grant that what we have with countries like China certainly is not free trade. China “pegs” its currency – and Bush lets them. This means that everything made in China costs about half as much as it should, and everything we make costs Chinese consuers about twice what it should. And our trade with most other countries is certainly not “free” because they by-and-large subsidize industries, don’t allow unions or environmental laws, or so many other non-free-trade violations that you can’t keep up And Republicans let them all get away with it in the name of free-market ideology.
But, of course, that’s the real world, and that’s the point. REAL people take advantage when you let them. That’s where DEscribing what people actually do interferes with right-wing ideological dreams of what people should do. People SHOULD get ponies. But what really happens is we get poorer, lose our health insurance, lose our pensions, lose our manufacturing infrastructure and lose our democracy.