No Housing Bottom in Sight - Barron's

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Why a Housing Recovery Is Far Off by Ian Shepherdson

Summary: Bulls see a housing bottom, but the glut caused by homebuilder overbuilding should prolong the downturn. From boom peak Q4 2005 to Q1 2007, new home inventory levels rose to 7.9 months from 4.7 months. Nominal mortgage rates aren't historically high, but the Office of Federal Housing Enterprise says a 2005 mortgage cost 5.9%, when house prices rose 10.7%. House prices rose only 3% this year, so real mortgage rates are at 3.5%, a big change from -4.8%. Historically, real rates and home sales are tied in, so prices should fall 10-15% according to Barron's' calculations. If home prices are static, then sales could fall another 20%-25% -- down 40% from 2005. Rising mortgage applications offer only illusory hope: Subprime borrowers apply everywhere for approval, and cancellations are up. Pending existing sales and National Homebuilders Association indexes are weakening, and if the downtrend continues, housing-related industries like construction, furniture and appliances will suffer. Personal spending in Q1 was precipitated by dramatically lower energy prices in Q4 2006. Oil prices are up again and retail reports are bad, even as employment and wages rise. Barron's expects a longer, wider housing slump.

Related Links: Housing Bubble and Real Estate Market Tracker • Subprime Concerns Persist, But Market Holding Firm • S&P/Case-Shiller Shows Housing Continues To Worsen • Pool Corp. Warns: No Surprise Here, But Watch 20% Short Interest

Comments

[LeeCarlson:]

I think that analyzing interest rates along with home prices and sales is getting on really dangerous ground ! Too many "if's" and "but's" in that kind of analysis and besides home buyers and typical investors don't have a clue what you are talking about. I found that it's better to keep it simple !!
But, what do I know,..I'm just a R.E. Broker w/ only 26 years experience !!
Regardless of all that analysis, people buy houses when they, and the banks, think the buyer can afford to buy ! That's the bottom line. ! The worst things that happened in the past few years was the lending process,...zero dn. loans ...appraisers who would approve anything ,...and too many buyers thinking the market is still headed up when the prices are already outrageously high !
Also, I keep hearing that even though the number of listings are WAY UP,..that actual selling prices are creeping up ! The reason the selling prices are going up is that the higher priced homes are the only ones on the market that show really well, have new A/C and appliances, fresh paint, new roofs, in general great condition. I could should you hundreds of current listings that have been on the market from 6 months to well over a year and in spite of numerous price cuts, and will never sell at the current asking prices because they don't show well enough ! Too many people overpaid and now they are trying to sell an empty home that is in poor condition, but the sellers think that , in time, it will sell !
Well,..I got news,..the Average home on the market has had 1-3 price cuts, and is still for sale !
I agree that the market will not really recover for 2-3 or 4 years ! Builders, in their ever present "Bull Market " thinking, will keep on getting burned but builders have , in past years, getting so much profit from building, that it's going to take a while for them to come back to earth ! In years past,..builders have been giving Realtors 2 pct. for bringing a buyer, but today,...they offer Agents 8-10 pct. commissions and lots of up- grades to customers, to try to move inventory ! Also, still trying to use "creative financing " ! Everyone in the industry has to get to a new mind set for the market to recover
and it ain't going to happen overnight ! LC

2007 Jul 09 03:46 PM

[jr7107:]

Maybe if we could reduce the 6% monopoly charge, higher interest rates would not sting as much on a transaction.

No broker will ever admit to a housing slump. My neighbor broker swears there is no issue with the condo market.

I'm going to side with Barron's on this one.

2007 Jul 09 10:07 PM

[cooker:]

Excellent! Lee Carlson. It is so refreshing to read some 'street smart' comentary about what is really happening in your real estate market. Your not a 'blogger' that writes nonsence to see their name in cyberspace.

I'm just another one of those 'rooky types', with 27 years of real estate experience. Oh yeah, I did have the number ONE franchise for a well known Real Estate Corporation in North America for the four years that I owned it.

Anything sells any time if the price is right. Markets rachet up and fall back. Play cycles not impulses.

You have until the last 1/4 of 2009 before you hit the bottom for prices in real estate in USA.

Craig

2007 Jul 10 01:26 AM