The U.S. housing market has not reached bottom and will likely not begin to recover until the middle of this year, three housing economists said this week.
The weakness will extend to existing-home and new-home sales and housing starts as well as to home prices, which are likely to show their first full-year decline nationally since records have been kept, the economists told home builders at their annual convention here.
“I don’t think we’ve seen the bottom,” said David Berson, chief economist for Fannie Mae. “We’re going to see a much bigger drop in investor demand this year. But by the second half of the year the market will stabilize, if investors pull out quickly.”
Yep, good times are “just around the corner.” Unless, of course, you look at the long-term median prices, run-up charts, affordability, default rates, foreclosures, etc.
In other news, HSBC warns over US mortgage bad debt,
In the year since Ben Bernanke became chairman of the Federal Reserve, the nation’s central bank has led a push by regulators, including the Comptroller of the Currency and the Office of Thrift Supervision, to raise mortgage lending standards, making it tougher for borrowers … to get a loan. Reducing the number of people who can secure a mortgage also may threaten the recovery of the U.S. housing market that the National Association of Realtors is predicting for the end of 2007.
[. . .] U.S. foreclosures begun on sub-prime adjustable-rate mortgages, or ARMs, rose to a four-year high of 2.19 percent in the third quarter as borrowers struggled to pay mortgage bills while interest rates increased, the Mortgage Bankers Association reported. During the five-year boom in housing prices, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property.
[. . .]“There’s a monster beneath the surface of the financial markets,” Shaughnessy said. “No one knows when or where the credit crisis is going to rear its ugly head.” [emphasis added]
An annual income of about $85,000 is needed to afford median-priced homes; salaries have not seen modest gains, according to a study.
U.S. home prices may have dipped over the past year, but many American workers would still struggle to afford a median-priced home in major cities, a new study said Wednesday.
“American workers are really not gaining ground and they’re so far behind in the first place,” said Barbara Lipman, research director for the nonprofit Center for Housing Policy, which conducted the study.
While the median home price in the 202 largest metropolitan areas declined 2 percent from a year ago to $248,000 in the third quarter of 2006, mortgage rates rose enough over the year that homes actually became less affordable as pay did not keep pace.And other news:
People still buy real estate that will be underwater in a few decades. Think about that.
The reason we don’t take global warming seriously in America is because ExxonMobil has been spending millions and millions of dollars funding a PR campaign designed to shift our attention away from the problem. This has been very good for business for them, but it has caused each and every one of us to behave in ways that are counter to our OWN and society’s interests. One day this will change. One day the consequences of global warming will become too serious to ignore. One day ExxonMobil will stop paying the Competitive Enterprise Institute and the Center for Defense of Free Enterprise and Citizens for a Sound Economy and the American Enterprise Institute and the Frontiers of Freedom Institute and the Heritage Foundation and the Hoover Institution and the National Center for Policy Analysis and the hundreds of other right-wing “think tanks” they pay to tell us global warming is a hoax (read the report), and then the fog will start to lift and we will start to see the world as it is — the “reality-based” world we live in rather than the one we see on TV.
How is this a “Today’s Housing Bubble Post?” Think about what will happen to real estate prices in coastal areas when we do start taking global warming seriously. How much will people pay for real estate that is going to be under water in a few decades?
But those who think that the worst may be over for the housing market should take another look at the data, economists say. For the figures on new-home sales have a strange wrinkle that, in the current environment, may lead the government to overstate sales (and to understate inventory) by up to 20 percent. “The market is weaker than the data say,” said Mark Zandi, chief economist at Moody’s/Economy.com.
… But here’s the rub: If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions. [emphasis added]
… Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories. New homes on which contracts are not consummated are not added back into the inventory figure.
U.S. home builders were a bit more pessimistic about the housing market in December, but they’re growing more hopeful that home sales could perk up in six months, the National Association of Home Builders reported Monday.
… Economists had expected the index, which measures builder sentiment, to improve to 34 in December, according to a poll conducted by MarketWatch.
A reading of 50 shows that half the builders surveyed think the market is good and half think it’s poor.
The index had fallen to a decade-low of 30 in September, the sharpest decline in the index’s 20-year history. The index stood at 57 a year ago and peaked at 72 in June 2005.
The recent slowdown in the housing market shouldn’t scare off investors in Home Depot.
…While the tough environment is projected to slow Home Depot’s sales growth to 2.8% this year, following a five-year run that saw the company average 11% growth, Trott points to a growing supply business and promising opportunities in China as big reasons for optimism.
New home construction is plummeting. Car sales are weakening. Investors have driven long-term interest rates well below the short-term rates set by the Federal Reserve. All these factors are present today, and all have been precursors of past recessions.
But the U.S. central bank and much of Wall Street are now betting that the old rules don’t apply, and that a recession next year, while possible, is unlikely.
Ah, the stock market bubble? And what happened to the “new economy?” What happened to stocks? What always happens to speculative financial bubbles?
Whenever you start hearing that “the old rules don’t apply” that’s the signal to sell while you still can. Another warning sign is when you hear that “this time” things will be different.
Here’s a brief overview of the mortgage market. When you get a home loan from a bank, the bank doesn’t keep the loan on its books. Instead, it sells the loan to a larger institution. These mortgages usually end up with Fannie Mae or Freddie Mac. Freddie and Fannie take similar mortgages (mortgages that have the same interest rate, maturity etc…) and “pool them”, or puts them together in one giant mortgage bond. Then, these institutions sell the mortgages to pension funds, mutual funds and other investment companies. When people state that Fannie and Freddie have added liquidity to the mortgage market, the above-mentioned process is what they are talking about.
There’s much more over at Bondad Blog so go read. In summary, we’re seeing some very bad indicators that major financial trouble is on the horizon. The old saying, “If something is unsustainable it can’t be sustained” is starting to come true.
Nationwide existing home sales rebounded last month but the median sales price took its biggest year-over-year decline in nearly four decades, according to real estate figures released today.
\… The modest rebound in sales may indicate that the nationwide housing slow down might be bottoming out — but any noticeable relief for sellers probably won’t come until next year, according to some housing observers.
… But other economists say a turnaround is still far away, with many signs pointing to a buyer’s market for some time to come. For example, the inventory of unsold homes, increased 1.9% in October to 3.85 million existing homes.
The way information spreads … You and I follow the news, or you wouldn’t be reading this. But most people get their information in different ways.
For example, many people are only now finding out that house prices have stopped rising, and are falling. Like this one:
Sagging sales, appreciation proof housing boom over
,Over the summer, John Toole put his Woodland Hills home on the market for $1,695,000 and waited for a rush of prospective buyers.
And waited, and waited and waited.
So he offered a 15-day Hawaiian Islands cruise for two to the agent representing the buyer to stimulate some interest. And Toole waited some more.
He eventually slashed his asking price by $100,000. Nothing changed.
“It didn’t bring anybody around. Nothing. The market is absolutely dead,” Toole said. “I was amazed.” This story goes on to talk about the last price drop,
Starting in March 1992, the median price fell on an annual basis for 37 consecutive months. In November 1995, it dipped to $155,000, the low point in that down market, 36.7 percent below the old record high.
Housing construction plunged to the lowest level in more than six years in October as the nation’s once-booming housing market slowed further.
The Commerce Department reported on Friday that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6 percent from the September level.
The decline, bigger than had been expected, was the largest percentage decline in 19 months and pushed total activity down to the lowest level since July 2000.