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Last week we saw where the Commerce Department reported a dramatic decline in the construction of new single-family homes and apartments during October. Today we got a little more evidence of what is going on with housing as we hear about sales of existing homes falling in 38 states last month. After I wrote about last week's report on new home construction, several comments came in from our readers saying how the slowdown in new home construction was just what the market needed. I agree, that less construction should help boost the ailing housing market, but that only holds true if you can keep demand flowing. Is it possible that Americans have finally had enough with their debt accumulation? I am sure the Fed is pondering that same question. Not only have we almost surely seen an end to rising interest rates, but I would not be surprised to see rates start to fall as we head into 2007 and as the Fed tries to get us back on our spending spree.
According to today's government report, the hardest hit states have been Nevada, Arizona, Florida and California. What is really interesting is that as the volume of homes sold has fallen, so have the asking prices. The report claims a reduction in the midpoint prices for existing homes sold during the summer of 1.2 percent year over year to $224,900.
Where does that take us? The way I see it, right now it will soon be a buyer's market. There just aren't the bids out there and at the same time, sellers are not willing to lower their asking prices to meet the stubborn home shoppers. It's a standoff and right now neither side is willing to budge. In order to sell their house sellers are going to have to drop their asking prices WELL beneath their market or hang in there and hope the market comes to them. I think they will be waiting a while if that is what their intentions are.
While no one seems to be questioning the housing decline as they were a couple months back, analysts still remain pretty split on how hard they see the decline hitting. Personally I see a pretty long drawn out decline in housing and would not be surprised to watch the Fed start cutting rates as we head into 2007 to do whatever they can to keep the landing as soft as possible.
But Wall Street doesn't seem to worried about housing, so why should I be right? The current chart for the DOW is pretty amazing. Sure oil prices have retreated but we are still looking at historically high prices, a weak housing market and evidence of economic slowdown. Imagine you just read those three things without having seen a picture of the DOW lately. Doesn't paint a pretty picture does it?
And amazingly enough here is the one year chart of the DOW's action:
Pretty amazing if you ask me!
While I know every area experiences differing market trends I would love to hear from some of our readers about what you are seeing in your markets. Help us get a clearer picture of what is really going on with the housing picture in your area.
Michael Fowlkes has worked as a stock trader for seven years and spent the last 2 years working as an analyst for the online investment advisory service Investor'sObserver.
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Reader Comments (Page 1 of 1)
11-20-2006 @ 6:31PM
Mr. noitall said...
In my area I see the standoff you're talking about, sellers are not willing to drop their prices enough. It looks like many have taken their homes off the market and have decided to wait until spring. So I would expect many more for sales signs appearing this spring and prices to weaken even further. I've also see real estate taxes rising at an annual rate of between 7% and 10%, well above any official rates (core or uncore) that we keep hearing about. This is hurting the sellers too. I think the standoff scenario will continue for years. The Fed can't help much due to our "Goldilocks" ecomomy.
11-20-2006 @ 9:03PM
Dennis Saylor said...
Well, unfortunately, the current down housing market is in the 3rd stage of a 4 stage decline:
Phase I: Panic stricken sellers putting their houses on the market @ unrealistic prices,
Phase II: The "New Price, Price Just Reduced, and Reduced, and Reduced" phase,
Phase III: The put it up for Auction, with a high minimum, or just sold to get out from under it,
Phase IV: Forclosure, Take it off the market, or Rent it until the market recovers.
11-21-2006 @ 8:14AM
Brian Barr said...
We in the west are undergoing a reality check. For years, our housing price increases have outpaced any rational explanation. The affordability index continued to drop even as lenders continued to trot out more and more riskier loan gimmicks. The current buyer/seller price standoff will turn into escalating price declines as investors tire of covering negative cash flows from insufficient rents to cover all the costs of ownership and large increases in property taxes. Investors have willingly taken on this condition with the expectation that housing prices will move up faster than the negative cash flow. As we see the opposite occurring, the move to unload these properties will escalate. Just as owner occupied homeowners were pulled along in the upward price spiral of recent years, they will now be part of the downward trend until we hit a supply/demand equilibrium. The supply/demand equilibrium is a mathematical calculation based on household formations in the local area. The pace of construction has outpaced this figure for a number of years so it stands to reason, it will take a number of years to unwind and absorb the oversupply of homes. The future downward pace of prices will be a function of the desperation or lack of desperation from investors which will be largely influenced by the health of the overall economy.