May 16, 2007
MarketWatch: Weak spring may drive home prices lower - Tough sales season, rising inventories further pressure housing market
BOSTON (MarketWatch) -- A spring home-selling season that's looking like a bust and pressure from growing inventories of houses in the resale market should intensify home-price declines in the second half of 2007, Wall Street analysts say
"We think the housing downturn has decisively moved to its second act of falling prices," wrote Deutsche Bank in a report to clients Monday.
Yet the picture could get worse if home-price declines catch up with falling sales, and home builders' profit margins are further squeezed.
"With the first act consisting of significant retrenchments in volumes, the second act is one with home prices falling back to more equilibrium levels after a period of breathtaking increases during the housing boom," Deutsche Bank said.
During first-quarter conference calls, home-builder executives said they're cutting prices or offering more incentives to make up for sales-volume declines. A key dilemma they've faced the past year and a half during the housing pullback is balancing volume and prices with an eye on protecting profit margins.