From the Economist:
Going down? (Subscription Required)
THREE years ago Rose Hill estates was a dairy farm in Loudoun County. Now it is in the front line of America’s housing slump. The rolling fields are dotted with cut-price McMansions. The asking price for new houses, complete with gourmet kitchens and “extended libraries”, has been slashed by 20%. But business is slow. The pace of home sales in the county has halved since last year while the stock of unsold homes has doubled. “The region is glutted with new houses,” says Lenn Harley, an estate agent. “The market is dead.”
Loudoun County, an exurb of Washington, DC, is an extreme example. But there is no longer any doubt that America’s housing bust is both bigger and more abrupt than many expected. Nationally, new home sales are down 17% from a year ago, and sales of existing homes have slumped 12%. By some measures, prices are now officially falling. New numbers released this week by the National Association of Realtors (NAR) suggest that the median price for existing homes fell by 1.7% in the year to August, the first such national drop since 1993. The median price of new houses fell by 1.3%.
And although August’s figures were less grim than expected, there is clearly more to come. The supply of existing homes for sale is up 60% from a year ago, is at a 13-year high and is still rising. Builders are at their glummest in 15 years. Even the NAR, long the chief cheerleader of the housing boom, now admits that prices will drop further.
Today’s debate is less about the scale of the housing slump than its consequences. Will America be dragged into recession or will lower oil prices help the economy shake off the property bust? Most Wall Street economists put the odds against a recession, but a noisy minority claim it is virtually inevitable.