Wednesday, September 13, 2006

Home Prices Expected to Fall for Remainder of 2006

From the National Association of Realtors:

NAR: Home Prices Expected to Fall for Remainder of 2006
(full text posted)

Housing prices are expected to continue to have a limited fall throughout 2006, according to testimony submitted by the National Association of Realtors at today's Senate Banking Committee hearing, titled the Housing Bubble and Its Implications for the Economy. In addition, NAR noted that the sellers' market is transitioning to a buyers' market, which can be healthy for some local economies.

"For the past five years, the housing market has been a steadfast leader in the U.S. economy," Thomas M. Stevens, president of NAR, told the Senate Subcommittee on Housing and Transportation and the Senate Subcommittee on Economic Policy. "After five years of outstanding growth, the housing market is undergoing a period of adjustment and becoming more and more of a balanced market between buyers and sellers," said Stevens.

Stevens said that with the falling demand and increased supply, home prices still realized slight appreciation though it was less than 1 percent, where over the past few years homes were appreciating at double-digit rates. "While recent developments raise concern, it is important to remember that the housing market varies significantly across the country," said Stevens. One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont and many states in the South, excluding Florida. States that experienced the greatest increases in home prices in recent years are experiencing significantly lower sales, such as Arizona, California, Florida, Nevada and Virginia.

"Contrary to many reports, there is not a 'national housing bubble,'" said Stevens. "We were seeing home prices and mortgage debt servicing cost-to-income ratios increase to unhealthy levels in some housing markets, which precipitate an adjustment." Also contributing to the cooling housing market is an increase in mortgage rates of nearly one point, speculative investors pulling back and first-time buyers being priced out of the market.

Adjustments to the housing market are not unique and can often times be necessary, said Stevens. In addition to the rapid appreciation of years past, the rise in mortgage rates affects a homebuyer's ability to finance and purchase a home. "Pressure is being felt in the housing market due to rising mortgage rates," said Stevens. "With rising interest rates, homebuyers have become exhausted financially which explains why sales have tumbled in higher-priced regions of the country."

NAR forecasts a drop in home sales of around 8 percent in 2006, followed by another 2 percent decline in 2007. These numbers are based on the stabilizing of mortgage rates and modest expansion of the economy. Also predicted is that home price growth will be minimal-less than 3 percent in 2006 and 2007. However, NAR warns that a significant shift in interest rates or a change in the economy would change this forecast. NAR notes that a soft landing is possible under the right circumstances and affordable mortgage financing is an important component in achieving this.

"Because the housing market strongly supports the economy and drives consumer spending, it is imperative that the Congress adopt policies that encourage homeownership and make purchasing a home obtainable for the millions of families who desire to own a home of their own. NAR stands ready to work with Congress to continue to open the door to the American dream of homeownership," said Stevens.

In 2005, the housing sector directly contributed more than $2 trillion to the national economy, accounting for 16.2 percent of the economic activity, according to testimony by the National Association of Realtors.

34 Comments:

Blogger grim said...

From the NAHB:

HOUSING DOWNSWING EXPECTED TO BOTTOM OUT BY ID-2007, BUILDERS TELL CONGRESS

The National Association of Home Builders (NAHB) told Congress today that the current downswing in home sales and housing production following the record housing boom of 2004-2005 is expected to bottom out around the middle of next year and gradually move back up toward trend by late 2008.



Testifying before the Senate Economic Policy and Housing and Transportation Subcommittees, NAHB Chief Economist David Seiders said that while the housing downswing still has some distance to go, “various economic and financial market fundamentals figure to be supportive of housing demand for the foreseeable future.”
...
Seiders also told lawmakers there are several downside risks to the housing and economic outlook he presented. These include the possibility of spikes in interest rates or energy prices, a large resale of homes back onto the markets by investors/speculators and uncertainties regarding the size of the inventory overhang in the market for new homes.



There also are considerable uncertainties about the impacts on consumer spending from a fading housing wealth effect as well as from the impacts of “payment shock” on home owners facing upward adjustments to monthly payments on “exotic” types of adjustable-rate mortgages (ARMs).

9/13/2006 10:59:00 AM  
Anonymous Anonymous said...

NAR notes that a soft landing is possible under the right circumstances and affordable mortgage financing is an important component in achieving this.
what exactly is "affordable mortgage financing"? isn't housing the one that should be affordable?


"...it is imperative that the Congress adopt policies that encourage homeownership and make purchasing a home obtainable for the millions of families who desire to own a home of their own. NAR stands ready to work with Congress to continue to open the door to the American dream of homeownership," said Stevens.

how will this help now. by the time they come up with something and implement them, the market might have bottomed out already, no?

9/13/2006 11:14:00 AM  
Blogger patient homebuyer said...

all i can say for home prices in the near future is

timberrrrrrrrrrrrrrr

9/13/2006 11:19:00 AM  
Blogger grim said...

That "American Dream" BS really disgusts me.

grim

9/13/2006 11:22:00 AM  
Blogger thatbigwindow said...

ditto

9/13/2006 11:23:00 AM  
Blogger skep-tic said...

this is basically a plea for congress to lean on the fed to cut rates.

how can financing be the problem when 30 yr mortgages are under 6.5% and credit is looser than ever?

(see yesterday's WSJ article on mortgage companies further downgrading their credit requirements in the past few months... memorable quote: "anyone with a pulse can get a mortgage right now.").

the only good thing about these hearings is that they're getting these NAR people on the record.

9/13/2006 11:31:00 AM  
Anonymous Anonymous said...

The banks are the powerhouses who control our govt.,otherwise who is covering all the checks the administration is writing at whim especially during the hefty deficits?

The banks naturally want to suck more people in and squeeze more out of them by making them buy more and service more loans.They will try to find more creative ways of financing and perhaps artificially keep mortgage rates down but the fundementals are out of whack and no matter what they do they will not be able to stop the free fall for too long. They may figure out some sort of temporary slower fall measures but that will be short lived because the fundementals are against them and will come back to haunt them, and the income will be affected with more unemployment and our dollar is inflated in today's world situation. Figures dont lie and the fundmentals are not there to support any improvement .Dont be fooled by temporary short lived measures if any surface.

9/13/2006 11:32:00 AM  
Blogger lisoosh said...

Interesting article on the UK experience with "investment properties" (known there as Buy-to-let, or BTL).

www.nomonkeybusiness.org/archives/00000057.htm

"10% of the UK housing stock is accounted for by the privately-rented sector. The buy-to-let fashion has not increased this proportion – only facilitated a shift from some pretty tough landlords, private but very professional, to a lot of amateurs. About 75% of privately-rented homes are owned by individuals with fewer than 5 properties. It’s now a bad business to be in. They are also likely to be the wrong people to be running it.

....The ‘true’ cash flows, including financing costs, of a buy-to-let business are now likely to be negative or close to break-even.

..House prices may be one of the things driving interest rates higher but rental growth is not what is driving house prices higher. In spite of all the bullish talk of shortages of homes, inward migration and City bonuses, rents are flat... Indeed, the proximate effect of high house prices and fear of a crash has been to create new demand for renting from frustrated buyers. Without that, rents might actually have fallen."

Very interesting article, with lots of economic analysis of real estate investing for those who like that kind of thing.

9/13/2006 11:40:00 AM  
Anonymous Anonymous said...

It would have been nice if someone asked him how his home sale is going.

9/13/2006 11:41:00 AM  
Blogger NJGal said...

Does anyone think the Fed will cut rates? I am guessing that this ridiculous bombardment from the housing industry will cause them to stay paused, but not drop. I don't think they will want to be seen as trying to support housing specifically.

9/13/2006 11:44:00 AM  
Blogger skep-tic said...

"shortages of homes, inward migration and City bonuses"

isn't it interesting that the same things that are used to justify high Manhattan prices are used in London?

9/13/2006 11:46:00 AM  
Blogger skep-tic said...

so what is supposed to be different about 2007?

9/13/2006 12:04:00 PM  
Anonymous Anonymous said...

anybody know who owns RealtyTrac and if it's publicly listed?
any ideas on how to profit from the housing downturn?
I heard on the radio that RealtyTrac's revenues are booming which I guess should be obvious to you who have predicted this housing downswing.
please share your knowledge with everyone so we can all at least profit from it :)
TY

9/13/2006 12:48:00 PM  
Anonymous Anonymous said...

Amen!!
Grim, how about creating a new feature on your blog like "Lowball" and "How much would you pay" where posters can provide their insights on what stocks to own in order to capitalize on the market slowdown.

9/13/2006 12:54:00 PM  
Anonymous Anonymous said...

this is basically a plea for congress to lean on the fed to cut rates.

The Fed is already worried. They well understand that WaMu and Countrywide will be in big trouble if rates increase, given their lax underwriting over the last few years.

Don't forget that the Fed's job is to maintain economy stability, by whatever means necessary.

9/13/2006 01:17:00 PM  
Anonymous jay said...

That "American Dream" BS really disgusts me.

Well said. It is such a powerful motivator and marketing tool for the RE industry that it causes some to mortgage their lives, overstretch their finances and sacrifice so much so they can "own", but instead, the bank ends up "owning" them. A life of servitude to pay for that overpriced house. Many so tired from commuting and work hours that they don't even enjoy what they're slaving away to pay for.

I was a homeowner until last year. Owning does have its benefits, but it's simply not worth twice the cost compared to renting. The premium on ownership at today's prices is still ridiculous, and buyers that have the patience, foresight and resolve to wait out this market will be well rewarded.

9/13/2006 01:18:00 PM  
Anonymous Anonymous said...

"Don't forget that the Fed's job is to maintain economy stability, by whatever means necessary."

9/13/2006 02:17:49 PM

Can you expand on whatever means necessary???? Do you suggest to inflate and cause more addition/severe problems down the road??? If you know something, let me know.

BC Bob

9/13/2006 01:42:00 PM  
Anonymous Anonymous said...

When the NAR says housing prices are expected to fall, bar the doors.....

Chaka Chong

9/13/2006 01:47:00 PM  
Anonymous Anonymous said...

"how can financing be the problem when 30 yr mortgages are under 6.5% and credit is looser than ever?"
the loose credit is the problem and next week congress is having a hearing on exotic mortgages. so it seems there fluffing congress with all the talk of affordable mortgages

9/13/2006 02:44:00 PM  
Anonymous Anonymous said...

by whatever means necessary.

I don't mean anything sinister by it--only that the Fed would not want to risk the stability of the nation's two largest mortgage lenders...and will therefore restrain themselves from raising rates.

It's the lesser-of-two-evils principle at work. A little inflation is better than a couple of bank failures.

9/13/2006 03:22:00 PM  
Anonymous Anonymous said...

"It's the lesser-of-two-evils principle at work. A little inflation is better than a couple of bank failures."

9/13/2006 04:22:31 PM
You may be right.This may be the avenue the fed takes. If you feel the fed will inflate to support housing go buy gold. If the market/debtholders sense that the fed is going this way,with core inflation out of their range, watch out. The dollar will get slammed and the market will force up our long term rates. They can create more problems by going this route. Somewhere along the line the piper has to be paid. It is either now or later. It will certainly be interesting.

BC Bob

9/13/2006 03:42:00 PM  
Anonymous dreamtheaterr said...

An excerpt from a PIMCO interview from June 2006:

Homeowners just do not cut prices in a meaningful way. People are stubborn and it’s very emotional for them. For homebuilders, this is much more of a business decision. They want buyers to purchase new homes, not existing homes, and so we think they are going to push on price and soften prices so that they make the sale, not the existing homeowner.

My question is how can us mere mortals take advantage of buying houses by home builders, knowing houses are nowadays build for the more wealthy, i.e. >$1 million?

Thoughts??

9/13/2006 03:54:00 PM  
Anonymous Anonymous said...

I thought the Fed's job was to keep inflation low, period.

9/13/2006 05:24:00 PM  
Anonymous Anonymous said...

I see a bailout coming.

First I think there is pressure on the Fed not to raise rates before the election. It wouldn't even surprise me to hear the Fed hint of a rate cut in the near future.

Next I would bet that there will be some sort of extended tax credit. It will be all smoke, but the politicians will be able to rally around some sort of relief for homeowners BS.

D2B

9/13/2006 06:12:00 PM  
Blogger RealityCheck said...

I thought the Fed's job was to keep inflation low, period.

Ah, how soon they forget.

Anybody on this board old enough to remember the LTCM bailout engineered by the Fed?

9/13/2006 06:41:00 PM  
Blogger grim said...

Old enough? The LTCM bailout happened what, about 7 years ago?

grim

9/13/2006 07:00:00 PM  
Anonymous Anonymous said...

"Anybody on this board old enough to remember the LTCM bailout engineered by the Fed?"

9/13/2006 07:41:44 PM

Realitycheck,

Seems like it was yesterday.

The fed engineered us out of a possible deep recession when they flooded the market with $ after the dot com bust and 9/11. That was then, what now??? This may make LTCM look like a day at the beach.

BC Bob

9/13/2006 07:00:00 PM  
Anonymous Anonymous said...

Foreclosures were up by 53% last month!

http://money.cnn.com/2006/09/13/real_estate/foreclosures_spiking/index.htm?postversion=2006091314

9/13/2006 07:08:00 PM  
Blogger RealityCheck said...

Old enough? The LTCM bailout happened what, about 7 years ago?

Eight, to be exact..just thought that it might have occurred while some of the 20- and 30-somethings on this board were too busy swilling beer at college to have been paying much attention to the financial markets.

9/13/2006 07:24:00 PM  
Anonymous Anonymous said...

Reality,

Don't discriminate against the 40 somethings that swill beer and pay attention to the markets.

BC Bob

9/13/2006 07:28:00 PM  
Blogger grim said...

Personally, I feel the S&L fiasco and the Resolution Trust Corp. is a more appropriate analogy for the upcoming debacle.

This 30-something didn't swill much beer in college.

grim

9/13/2006 08:26:00 PM  
Anonymous Anonymous said...

Grim,

You're right. It wall fall on the taxpayer's shoulder, not the IB's.
I guess the analogy is that a bailout is coming. By the way, what were you swilling??

BC Bob

9/13/2006 08:40:00 PM  
Blogger Richie said...

"Contrary to many reports, there is not a 'national housing bubble,'" said Stevens. "We were seeing home prices and mortgage debt servicing cost-to-income ratios increase to unhealthy levels in some housing markets, which precipitate an adjustment." Also contributing to the cooling housing market is an increase in mortgage rates of nearly one point, speculative investors pulling back and first-time buyers being priced out of the market.

Oh christ already, enough with the stupid analogies. They strive so hard to convince the public that it's a much needed correction. WTF. It's a bubble. If it wasn't a bubble, there would be no need for a correction.

9/13/2006 10:11:00 PM  
Blogger grim said...

scotch

9/14/2006 05:55:00 AM  

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