Monday, February 27, 2006

Sales of New Homes Decline, Inventory a Record

I am guest blogging for Grim this week while he's out of town. The housing starts number is out!

U.S. Economy: Sales of New Homes Decline, Inventory a Record

The total sales for for new homes is at a 1 year low, while inventory is at a record high..

Higher mortgage rates and home prices will push down sales and may contribute to a slowing of the economy in the second half, economists said. Home construction may not add to economic growth this year for the first time in more than a decade, leaving homebuilders less optimistic.

With this being said, and the Economy seen rebounding strongly in 2006 I find it hard to believe that the "low interest" rates will continue to be a driver for the industry.

And finally, to quote the end of the article:

Housing affordability fell to the lowest level in more than 14 years last quarter and may decline further in 2006 as mortgage rates and prices continue to rise, according to the Realtors.

-Richie

22 Comments:

Blogger Shailesh Gala said...

NJ house prices are still outrageous. It is still difficult to afford anything decent in North & Central NJ below $500,000. To buy that house one would need income of at least $150,000 annually, which is not median income of North & Central NJ. Here is what we can do as individual to make very little impact.

Write about House affordability issue to POLITICIANS !!! I know many would laugh at this, but last time I checked we were still a Democracy. Here is link to Governer's website to send them email. I sent one today. I know one will not make difference, but if all folks on this blog sends out message, It will make difference. So, if you think prices are still outrageous, use following link and send your message.

http://www.nj.gov/cgi-bin/governor/govmail/govmail_1.pl

2/27/2006 12:06:00 PM  
Blogger Shailesh Gala said...

Wrong link. Here is the correct one.

http://www.nj.gov/governor/govmail.html

2/27/2006 12:08:00 PM  
Anonymous Anonymous said...

What do you expect the politcians to do to lower the home prices?
Everybody who already has a home doesn't want any new development. What you've got is democracy at work!

2/27/2006 12:21:00 PM  
Blogger RentinginNJ said...

Shailesh Gala

I agree that the housing bubble should be a major concern to the polititions. If the bubble bursts, it will damage the economy Shailesh Gala

I agree that the housing bubble should be a major concern to the politicians. If the bubble bursts, it will damage the broader economy. If it doesn’t burst, high housing prices will chase out many younger families (myself included). This will hurt businesses in NJ. Either way we are in trouble. I personally think a bursting bubble now, which is inevitable anyway, will cause much less pain in the long run.

I’m just not sure what the governor of NJ can really do about the housing market. What did you suggest?

2/27/2006 12:40:00 PM  
Blogger Shailesh Gala said...

I think even 5% of NJ residents are in same boat (want to buy house, but can't afford it), they can make big difference. 5% change of vote can change balance of power !!! Also, don't discount the fact that at the least such a group can bring Affordibilty topic to for front.

There are many avenues that can help. For e.g. Media can be used effectively to create awareness.

Small group of individuals can make big difference, if they are committed to it.

2/27/2006 12:41:00 PM  
Anonymous Anonymous said...

politicians involved?

hmm, what about Fannie Mae?

I agree the prices are too high but it is free market. If you do not buy it prices will drop, ala supply and demand.

I would say better to tell them to give us information. that is better. if we the citizen had the information we would know more. We should know what is going on with the market, to have this information given to us.

Also, remember the small guys do not give to the political machine like the ones that benefit from higher home prices.

but political action is good, but I think you need to look at a different way

2/27/2006 12:55:00 PM  
Blogger snjbubble said...

In the long term, prices will be high or low based on what people can afford. This is what happens in capitalism. Smart ones make lot of money and others lose. But the prices have reached to a stage where it does not make sense and we all will see in coming months/years its impact on people/economy.

2/27/2006 01:02:00 PM  
Blogger Richard said...

as the MEW slows down the economy will be affected. i expect to see housing prices continue to be under assault as the pool of buyers grows smaller as the inventory piles up. this year probably isn't a good time to buy as your leverage as a buyer is just starting to grow in your favor. let the inventory build and fester for a while. don't worry, it will. in the end starter houses in the $600's and up won't have enough buyers to maintain those prices. in 12-18 months i can all but guarantee prices will be less than they are today as sellers realize the game is really over and have to compete with each other.

2/27/2006 01:05:00 PM  
Anonymous Anonymous said...

America is a free market economy, not communism. The government does not control real estate prices.

2/27/2006 01:17:00 PM  
Blogger Richie said...

It's all a waiting game; if you can hold out; you're money is working better for you in the bank then it is in a piece of real estate.

I know plenty of people who want to buy, but don't want to kill themselves spending $400-$500k on a "fixer-upper" knowing that it needs a good $100k of work. The land excuses and supply are poor; they've used that excuse once before and failed. There's plenty of land out there for everyone. If they can't build out, then they will build UP. There's tons of land that may be in some type of restriction, but as townships and the government get strapped for cash, they'll try to make money by letting some of it go.

The only thing that consumers can control is how much *they* can afford to spend, not how much the seller wants to receive.

The incentives are nice; but the smart shoppers will say "if they are offering this much now when they aren't desperate, how much will they offer when they become more desperate".

There's always a "craze" when an investment is on the up-and-up (ie: spring-summer 2005). And there's always a "PANIC" when things are on the downfall. When that "down" is, we don't know, but I feel it's around the corner.

You can't experience happiness without sorry. You can't experience a boom without a bust.

-Richie

2/27/2006 01:21:00 PM  
Blogger Metroplexual said...

Anonymous said...
America is a free market economy, not communism. The government does not control real estate prices.

1:17 PM

Actually the government does. based on how low or high interest rates are set. And don't forget lax loan selling regulation. I am convinced this bubble is a result of both as well as speculators that dumped their stock in 1999 looking for elsewhere to invest.

2/27/2006 01:34:00 PM  
Anonymous Anonymous said...

"Some economists are worried that with the inventory of unsold homes rising, there could be significant downward pressure on home prices, triggering a chain-reaction similar to the bursting of the stock market bubble in 2000, a development that contributed to the 2001 recession."

http://dailynews.att.net/cgi-bin/news?e=pri&
dt=060227&cat=news&st=
newsd8g1kooo7&src=ap

2/27/2006 02:48:00 PM  
Anonymous Bubbled Out said...

The key now is patience. It's obvious that the peak has been reached, but it will take at least 1 to 2 years for prices to reach more realistic levels unless panic selling occurs.

2/27/2006 03:17:00 PM  
Blogger Metroplexual said...

Good story

http://www.bankrate.com/brm/story_content.asp?story_uid=18353&prodtype=mtg>bankrate

Time to hit the red button?

Monday, Feb. 27
Posted 2 p.m. EST
MORE OF THE SAME: Bond yields are about the same as Friday, so you probably won't see a difference in the mortgage market. The 10-year and five-year Treasury yields are each up 1 basis point from Friday's close, to 4.59 percent and 4.65 percent respectively. The two-year Treasury is down a basis point, to 4.73 percent.

DROPPY SALES: Armageddon has arrived on the real estate scene, according to over-caffeinated tea-leaf readers. The readers are over-caffeinated, not the tea leaves.

CNNMoney espies a ballistic missile-shaped housing bust descending upon us at supersonic velocity. "Home sales: Is the market glutted?" the article shrieks. The reason for the hyperventilation: New-home sales fell 5 percent in January (PDF file). At this rate, new-home sales will fall more than 60 percent this year.

Sound the klaxons.

CNNMoney notes that the initial estimate of December new-home sales was revised upward, to a 1.3 million annual pace from the original 1.27 million annual pace. Economists had expected January to clock in at around a 1.27 million annual rate, too, but it fell to 1.23 million.

Let's break this down. Before this morning, economists and investors thought that new homes were sold at a 1.27 million annual pace in December, and at a 1.27 million annual rate in January. Average those out and you get a 1.27 million annual rate for new home sales in December and January.

Now economists and investors think that new homes were sold at a 1.3 million annual pace in December and a 1.23 million annual rate in January. Average those out and you get a 1.265 million annual rate for new home sales in December and January. That's a difference in 5,000 homes for the whole year for the whole country -- or about eight new-home sales per state per month.

Alert! Alert! I say we push the red button. Obviously the real estate market is crashing.

The median price of a new home was up $9,100, to $238,100. Are rising prices another sign of a real estate collapse?

"Prices did rise, but the rate of increase is slowing and builders are tossing in more freebies to keep the prices up," economist Joel Naroff says. "But the real worry is the rapidly building inventory of homes. They rose moderately over the month and are up almost 21 percent from January 2005. That is not good news."

There was a 5.2 months' supply of new homes on the market in January, up from 4.4 month's supply in January 2005 and up from 4.8 months' supply in December.

LOOK OUT BELOW: Some real estate markets are going through Wal-Mart moments, with low prices every day. According to ZipRealty's reading of the MLS data, sale prices fell 21 percent in January in Corona, Calif. Ah, but then you see the total transactions -- down 47 percent from the previous month. Maybe the smaller sample size is distorting the data.

Same sort of thing in Bethesda, Md. Asking prices were down 16 percent, and sale prices slipped 15 percent, in January. But total transactions were down 59 percent.

The price per square foot in Plainfield, Ill., skyrocketed 10 percent in January, to $119 a square foot. That's an ironic joke for the benefit of us folks who live on the coasts, where cheap houses cost at least twice that a square foot.

FACTOID: General Motors lost $4.8 billion last year. Its GMAC subsidiary, which is one of the nation's largest mortgage underwriters, earned $1.4 billion. My interpretation: The company lost $6.2 billion making cars, and made $1.4 billion making loans.

KICKIN' IT: Are we debt junkies, mainlining our home equity? Not exactly, Kenneth Harney explains.

2/27/2006 04:40:00 PM  
Blogger Rob Ryley said...

"America is a free market economy, not communism. The government does not control real estate prices."

I wish this were true. If you want to blame someone for high real estate prices, blame the Congress.

They are the ones that created Fannie and Freddie, ostensibly to make mortgages easier to get.

Obviously, when more people have the power (and desire) to purchase homes, yet supply remains constant, prices go up. Simple economics.

Real estate would be much cheaper if there were no GSE's involved in the secondary mortgage market.

2/27/2006 06:47:00 PM  
Blogger Metroplexual said...

Amen Bob. I believe it is referred to as market distortion. I am no economist but I don't think that means a little common sense can't see through the haze.

2/27/2006 07:57:00 PM  
Anonymous Anonymous said...

I know we have been through this a number of times, but here is another example of a realtor pulling a property because it sat on the market and listing it under another mls #.

Formerly - MLS # 2103240

Now - MLS # 2250767

2/27/2006 09:35:00 PM  
Anonymous NJ Sucks said...

NJ Home Prices

2/27/2006 11:07:00 PM  
Anonymous Anonymous said...

The problem is there are too many people (flippers and others) in the real estate game. I have been flipping properties now for a very long time and I have always made some decent cash. All of these greedy contractors who just recently came into the game are driving the prices up with their silly antics. I am content with making about $20,000 or 10% on a flip. Contractors these days are selling each of their properties looking for at least a 30% return. Outrageous! Eventually prices will come down so much that people in real estate will be earning only 10% back which will probably put me out of business. Little man gets screwed again =)

2/28/2006 12:31:00 AM  
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self help books what about it..self help books

4/11/2006 08:51:00 PM  
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