Posted on 11/09/2006 5:17:47 PM PST by MeneMeneTekelUpharsin
The recent rise in new-home sales doesn't herald a housing turnaround. Rather, desperate home builders are simply resorting to extreme measures to keep inventories of unsold homes from mounting sky-high and prices from going into a free fall. Builders are willing to take huge hits to their profits just to unload empty properties, which bring in no income and incur financing costs. In addition, the 5.3% rise in new-home sales in September and the 3.8% advance in August should be viewed with a healthy dose of skepticism because many of those sales are likely to be canceled in subsequent months. Statistically, once a contract on a house is signed, it vanishes from the official numbers—the new-homes data compiled by the Commerce Department aren't adjusted for cancellations. This also suggests that sales declines in previous months were probably worse than they appear on paper, given that cancellation rates are hovering around 30%-40% of sales this year.
The average value of upgrades and other sweeteners offered by home builders is now equivalent to about 5% of the purchase price, similar to what builders offered during the steep downturn of the early 1990s. The implication here is that the median price decline of 9% for new-home sales in the past 12 months actually works out to about 14% on builders' books. Sellers are offering all sorts of enticements for buyers, including customized bathrooms, delayed mortgage payments and flat-screen TVs. One builder, knowing that a prospective buyer would soon return from vacation and take another look at a house, left a new car in the garage as an inducement to sign on the dotted line. We see several more months of pain ahead for the housing market, until enough excess inventory is mopped up to balance supply and demand. Total sales of new and currently owned homes will drop 7% next year after a 9% swoon this year. We see the median sales price declining about 3% in 2007.
Apartment rent hikes will peak during the first half of 2007 at about 4.7%. That'll be the national average for renewing rental deals or signing new ones. In the second half, expect a 4% average rise, still not at all shabby in historical terms. The steep drop in condo conversions will increase the supply of rental properties. Sales of condominiums are falling even faster than sales of houses, taking the luster off conversions. But the condo market isn't collapsing. At 7%, the national average condo vacancy rate is at a 13-year high. To cause serious damage, the vacancy rate would have to exceed 10%.
Right now the economy is doing fine because business investment is picking up the slack from weaker housing investment. That's the usual pattern where housing and car purchases by individuals lead the economic recovery and business investment strengthens significantly a few years later even as the Fed raises interest rates.
By the time Her Royal Thighnesses' presidency is over, we're going to be using the 2x4's from all of the abandoned houses as firewood to keep warm.
Seriesly though, prices will equalize when I can buy a 3/2 anywhere and rent it for a profit. <---that's the way it's supposed to work.
New York City is laughing at the "slowdown". So far anyway. Sales are brisk and prices are holding firm. And rentals are almost impossible to find.
Near the Euclid St. Paul Catholic Church. No evacuation zone. The neighborhood a couple away from old ne. My understanding is that those west of 19 have it harder than us east, and if that's the case, oh my.
Not for long. We just elected an open-borders Congress, so we are still on track to double the population again by about 2040.
Short term slumps I can ride out. The house I bought 25 years ago for $97,500 might slide all the way back to $700,000, or $600,000 in a complete meltdown. I'm not going to panic.
What part of N. Texas? Sounds as if you got a great deal.
Two incomes have become the norm in the McMansion set. However, I know quite a few younger couples who have elected to have mom stay home with the kids. The solution: they live in much smaller houses, which actually look a lot like the houses we grew up a generation ago, when most moms stayed home.
Expectations have changed. That's not a crisis of incomes; it's a problem of young people wanting too much too soon. Delaying marriage and childbirth (guilty on both counts myself) is part of the problem. Young people get hooked into the two-income lifestyle including the big mortgage long before the rug rats appear. They then find it extremely difficult to take a deliberate step down in housing, neighborhood, and perceived social status, so they get squeezed.
I believe you are correct. However, that is also open invitation to eventual war -- such is NOT good for housing.
Your post is a perfect example. Making a suggestion that financial conditions are less than perfect under President Bush brands one a both a DU-ite and a democrat planning and hoping to destroy the economy. That's one of the things that bushbots do.
It's really a type of fascism when it comes right down to it. Toe the party line or be slandered.
If a person looks at their home as an investment and not just a place to live...they may want to dump it now...take the profit....and go rent for a year or two.
In theory they could re-purchase their home for 15% less next year.
In many areas, you can now rent a home cheaper than to own it.
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