Housing Prices Are Still Headed Down

The latest news is really bad for developers selling houses:

That decline reflects two things: first, that we builders have constructed far more homes than Americans need, and second, that they are facing reality that there are too many homes. To sell, you need to cut the price. Here's how the supply of new homes looks:

That horizontal line is the average inventory of unsold homes. At the rate we're going, we'll get there in June 2010. Maybe a little faster, or a little slower. But not next month, or even next year.

Comments

[Nate C]

Tell that to the idiots pushing up prices of the homebuilding stocks. They are puerile enough to believe that housing will recover in 6 months! LOL! I guess they like drinking that Kool Aid

[BelvedereResearch]

Great article and agreed with the above comment on homebuilder runups happening now. I wouldn't be surprised if the mortgage related companies (Countrywide, etc...) find their feet in a matter of a few quarters, but these homebuilders are going to be fighting a headwind of industry overhang for quite a while.

[Expat]

Inventory, schminventory. There is tremondous pent-up demand! They're not making more land. Population is booming. Economy is rocking! Interest rates getting slashed.

Housing is going to recover. There is only one final piece of the puzzle and it's on its way. Prices just have to decline another 35%.
Or maybe 40%.

But we are on the way, baby! Recovery city! Just one last dip and it's off we go! Wheeeeee!

[Jim inOrlando]

Expat, dude, put down the Kool Aid! There is not a pent-up demand, the population of many overbuilt areas is decreasing as folks flee to less expensive areas, and the economy is tanking! Interest rates are going up - have you looked at mortgage rates lately?

Yeah, they're not making any more land... wait a minute, don't realtors say that a lot... you wouldn't be... nah!

Ah ha - you hit the nail right on the head man - PRICES HAVE TO DECLINE 35% or 40%. I salute you!

If the buying public wasn't so stupid and gullible they wouldn't have fallen for this ponzi scheme in the first place!

[times3]

Anyhow, long term rates (esp. mortgages) continue to be driven up by inflation worries along with a huge credit risk spread. It will be interesting to see how Bernanke responds as these short term cuts push us ever closer to stagflation with no benefit to housing...

[sujo]

A house I once wanted to buy
But the prices were too high
A pretty good salary I make
But no more than 3X would I let them take
So a renter I gladly stayed
And I’m oh so happy today

Sujo

[sujo]

A house I once wanted to buy
But the prices were too high
A pretty good salary I make
But no more than 3X would I let them take
So a renter I gladly stayed
And I’m oh so happy today

Sujo

[Malkiel]

Ironically, if builders had followed best practice and built houses in the range of affordability for the region rather than speculating on oversized, overpriced, overstuffed McMansions, they would probably have continued making a steady profit rather than riding the roller coaster back down as they give up the windfall profits from the McMansions by discounting unsold inventory...

[JohnnyBitchdog]

Malkiel -

I agree with your sentiment, but instead of affordability I would substitute "long term affordability". As you know, loose lending made these McMansions affordable in the immediate sense of being able to get financing.......but as you point out unaffordable by conservative, best practices.

Can you expect the guys with power tools to be economists ?

Or is it better we blame the financial operators for much of the problem ?

Seems like the financial operators deserve more blame than the homebuilders.....

jbd.

[WAKEUP]

Every day, it becomes more clear that owning a house is a poor quality investment. When ALL the extra costs of owning a house, VS renting same are calculated, home ownership looks like a rip-off. What's that, you say? It was ALWAYS a rip-off? I think you're correct.

[User 67901]

Homebuilders will transition to more realistically priced and sized homes. However, the problems plaguing trapped homeowners will be amplified as oversized and overpriced homes built with marginal quality begin to decompose. Huge mortgage payments will have to be supplemented by very high maintenance costs for these vast structures in order to protect value. This is the creeping delapitation scenario.

[CBOEtrader]

I realize that electronic sarcasm is hard to gauge, but I believe Expat is being facetious bull, rather than making a serious case for homes going up.

"Prices just have to decline another 35%.
Or maybe 40%.

But we are on the way, baby! Recovery city! Just one last dip and it's off we go! Wheeeeee!"

It's funny cause its true.

[User 158554]

if everyone is negative on real estate, doesn't that make it a good time to buy?

[Royal Palm]

"if everyone is negative on real estate, doesn't that make it a good time to buy?"

I dunno. Everyone's been down on Hitler for 60 years but it doesn't mean it's a good time to become a Nazi...

[algorithmbetting]

"if everyone is negative on real estate, doesn't that make it a good time to buy?"

not sure everyone is negative are they?

just think about the demand on the way up -first time buyers, immigrants, investors. they built as fast as they could to give them what they wanted.

and now on the way down - how many buyers? and how many sellers? this housing market crash will go on for a while yet just to clear the market of unmatched trades!