All those adjectives, and we never came up with that one. Should have. Joel Naroff, President of the National Economic Advisors, gets the credit. Let's make it stick.
I also like "rolling over" versus "soft landing". Nice to see the MSM pick up some non-NAR-endorsed housing lingo...
On a year-over-year basis, housing starts are down 13.3% in July.
Echoing this, the confidence of U.S. home builders collapsed in August, falling to the lowest level since February 1991, the National Association of Home Builders reported.
Economists generally agree that the housing market's rolling over. There remains a debate about the magnitude of the decline and its impact of the overall economy.
Joel Naroff, president of Naroff Economic Advisors, said it is no longer correct to describe the weakening housing sector as a slowdown. "Rout" is now the proper word, he said.
"Things seem to be getting worse. By the end of the year, we will likely be looking at starts off at least 20% and permits 25%. Is that a bubble bursting? You tell me," Naroff said.
August 18, 2006
HP'ers we have a new expression: Housing Rout
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The housing market turned in one of its worst performances in years, with existing-home sales falling 7%, to an annual rate of 6.7 million in the second quarter, according to data released on Aug. 15 by the National Association of Realtors. The results show a clear bifurcation in the market. States that had seen a big run-up in home prices are experiencing the most dramatics sales declines, while markets with strong economies and lower-cost housing are still seeing sales increases.
"There's a lot more merchandise and tremendous amounts of price reductions," says Phyllis Haber, a realtor with Prudential Douglas Elliman on New York's Long Island. "It's crazy. It's like someone waved a wand and everything changed." New York saw sales drop 4.8% year over year.
The big losers include California, Nevada, Arizona, Florida, and Virginia. All of the states saw sales fall by more than 20% from the same period last year. In the once red-hot Southern California market, sales of new and previously owned homes fell 27% to 22,700 in July, according to market researcher DataQuick. That was lowest number of homes sold since July, 1997.
Real estate analysts say the problem is that escalating home values in the past five years, coupled with the more recent rise in interest rates have priced many people out of the market. In a recent note to investors, W. Scott Simon, a managing director at bond fund manager Pimco, noted that 30-year mortgage rates have climbed from 5% to 6.5% in the past year and a half,. That means that even if a home is priced at the same amount as it was 18 months ago, a buyer will pay more per month to purchase it. "Affordability is one of the main reasons we expect price increases to slow," he says, to an average of 5% nationally this year.
VALUATION IMPLICATIONS? Others see another factor at work, namely that crowd psychology is shifting. "Our sense has been that many who bought homes in recent years purchased them sooner than they otherwise would have because of very low interest rates and a great sense of urgency," says DataQuick President Marshall Prentice in a note to the media. "Whether July's data also signal something more ominous at work in the market—something that would cause a severe correction in home values—is unclear to us. We'll know a lot more in a few months."
Another wild card is the impact of rising rates on homeowners who took out adjustable-rate mortgages. Robert Boyce, a factory worker in Miamisburg, Ohio, refinanced his home four years ago at what he felt was a manageable rate of 7.5%. Today he must pay 9.5%, and, under the terms of his mortgage, the rate could jump to 11.5% in December and 13.5% next year. He says that because of high closing fees and an overambitious appraisal by the lender, his mortgage is now more than what his house is worth. He's working with a mortgage counseling service to renegotiate the terms. "We're just one of millions," he says. "I'm sure there are a lot more people out there that are in the same situation we are," (see BusinessWeek.com, 8/10/06, "Foreclosures: Down, But Not Much Longer").
In contrast to the gloomy sales numbers in some markets, 20 states managed to show increasing home sales. They are led by Alaska and Texas, whose oil-driven economies are producing more jobs and, as a result, new-home purchases. In Alaska, sales leapt 48%, while in Texas they increased 11%. Sales in Louisiana were up 4.9%, although that may have as much to do with a flurry of Hurricane Katrina-related activity as with oil industry jobs.
BUILDERS' STOCK RALLY. Other strong markets include the Carolinas and Tennessee. In Nashville, for example, a condo development called Icon in the Gulch managed to sell 217 units in 48 hours with prices escalating throughout the day. The Gulch is an emerging downtown neighborhood favored by young professionals and empty-nesters who want to walk to work, restaurants, and night clubs. The units sold ranged from $175,000 to $850,000. "It is about lifestyle, not price," says Lindsay Cleveland, a spokesperson for the developer.
Ironically, home builders such as DR Horton (DHI), Centex (CTX), KB Home (KBH), Hovnanian Enterprises (HV), and Pulte Homes (PHM) saw their share prices climb throughout the day. Some had already seen their stocks fall as much as 50% from their peaks (see BusinessWeek.com, 6/20/06, "Beware False Housing Hopes").
The reason for the positive reaction is a hope that the Federal Reserve may hold the line on raising interest rates. Last week, the Fed decided not to raise short-term rates, after 17 consecutive hikes (see BusinessWeek.com, 8/8/06, "The Pause That Perplexes"). The weak housing market report came the same day as the Labor Dept. said that wholesale prices showed an unexpected drop. Those factors helped raise hopes that the Fed will hold off raising rates in the near future and lifted stocks in general, even that of Countrywide Financial (CFC), the nation's largest mortgage lender
eek! I stand corrected. My 5th grade english teacher would be mortified
I really think that 'housing rout' is a great expression.
David
Bubble Meter Blog
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