From the Wall Street Journal:
Is the Worst Over for the Housing Bust?
The worst of the housing bust is over, economists said by nearly 2-to-1 in the latest WSJ.com economic forecasting survey. But they still predict that the average selling price of a house will fall next year.
After several years of double-digit percentage increase, housing prices stopped soaring this year. The 49 economists responding to the WSJ.com forecasting survey expect home prices, measured by the government’s Office of Federal Housing Enterprise Oversight index, to rise 2.8% this year and to fall by 0.5% next year. That contrasts with a 13.4% increase in 2005.
“We’re nearing the end of the slowdown for most markets,” said Ethan S. Harris at Lehman Brothers. Prices still have some ways to fall before they’ll stabilize, but there are signs that most drastic parts of the downturn – marked by a sharp pullback in demand and new construction – have run their course.
The economists’ predictions for home prices next year vary widely, from an increase of 7%, predicted by Kurt Karl and Arun Raha of Swiss Re, to a 10% decline, expected by Maury Harris of UBS. Mr. Harris, for his part, said he expects a large inventory of vacant newly constructed homes to push prices lower in the first half. Construction companies “built much more than were justified because of investor interest,” he said.
While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.
Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. “We’re starting to see inventories topping out and possible declining,” he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.
The housing market, of course, doesn’t move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average.
81% of the economists feel home prices next year(2007) will either be negative or grow at most by 2.1%.
My money market account currently pays me 4.8%-5.0%.
Risk to reward favors those who wait out 2007.
“Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. “We’re starting to see inventories topping out and possible declining,” he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.”
Haven’t home prices already fallen 2.x% year over year across the country? Is Richard predicting a 6% increase in the last two months of this year?
whew that was close!
sorry folks, but being a active participant in the financial markets for the last 10 years, it aint a correction until there is widespread pain, and we aint seen nothing yet. Until you see loads of speculators/builders being carried out on stretchers, it doesn’t qualify as a correction in my book. Please, a 10% pullback from prices that have doubled in 7 years seems trivial to me……
You decide if the worst is over. Sorry no link;
Today’s U.S. Market Focus
The Oct US housing starts report released last Friday showed an alarming decline of –14.6% to a 6-year low of 1.486 mln units. US housing starts have now fallen by a total of 34% from the three-decade high of 2.265 mln posted this past January. US housing starts have not fallen this sharply since the 1986-1990 period, when housing starts fell by more than 50%. US housing starts finally broke after the 30-year mortgage rate rose by 130 bp from 5.50% in mid-2005 to a 4-year high of 6.80% in July 2006. More importantly, the initial rate on variable rate loans rose sharply by 2-1/4 percentage points from 3-1/2% in early 2004 to 5-3/4% by mid-2006. The rise in variable rate loans was instrumental in curbing the rampant speculation in homes that occurred on the coasts and in the second-home market. The bigger picture is that the Fed’s steady rate hikes from mid-2004 through 2006 finally popped the bubble in the housing market that developed due to the Fed’s extraordinarily easy monetary policy during 2002-2004. US homebuilders are responding to the drop in new home sales by slashing plans to build new homes. The first order of business for homebuilders is to clear the excess supply of new homes that are already on the market in order to book revenues and cut carrying costs. The supply of new homes on the market has soared from 4 months last year to a 12-year high of 7.2 months in July. Since July, the supply of new homes has fallen back slightly to 6.4 months. Homebuilders are trying to clear the market of excess inventories by cutting prices and holding various promotions. However, history suggests that it will take at least 2 years for homebuilders to get inventories back down to the levels seen in the 1998-2005 level near 4 months. In the meantime, US homebuilders will be under pressure to cut housing starts even more to ensure that new homes are not added to the market faster than homes are being so
“Please, a 10% pullback from prices that have doubled in 7 years seems trivial to me……”
ricky_nu,
You are right if this is the end of the decline. However, I feel that we are in the first stages of this bust. I totally disagree with your definition of a correction. When we see specs/builders/I/O’s carried out on stretchers, it will capitulation not a correction. We are not close to the fear/panic stage.
“The worst of the housing bust is over…”
For starters, I’ll need to see how the mortgage slaves handle a few trillion $ in ARM resets over the next 18 months.
There is still a long way down, let’s not be naive.
Lumber prices have increased to $278, up 19% from early October low.
Mortgage applications increased for third week in a row.
University of Michigan’s “Is it a good time to buy a house survey” has turned up.
Was October the bottom?
“The worst of the housing bust is over, economists said by nearly 2-to-1 in the latest WSJ.com economic forecasting survey.”
Deep down inside, these economists don’t want to see the value of their homes decline.
Typical that ecomomists are predicting shortsighted views.
A correction is a correction and there are so many factors involved. And so many different income and buying categories to consider.
I cannot believe it is simply over and we move on. The important question is: will is be just a correction, or a bloodbath. I am predicting the repeat of the 90’s when this depended upon where the speculation was and whether is was a SFH or Condo. Condos can easily drop 30 to 50% – especially in areas where there was overbuilding and speculation. (Remember the coops of the 90’s guys)
“whether is was a SFH or Condo. Condos can easily drop 30 to 50% – especially in areas where there was overbuilding and speculation. (Remember the coops of the 90’s guys)”
What was the drop, if any, for Single Famliy Homes?
“Lumber prices have increased to $278, up 19% from early October low”
Off a high of $460 in early 2004, still off approx 40% off its highs!!!!!!!!! Short covering???
“The worst of the housing bust is over”
Do yourself a favor and check out some articles from shortly after the stock market crashes in 1929 and 2000. Its the same story every time… the worst is over, the fundementals are strong, now is the time to grab a bargain…
It’s just part of the package that comes along with a bubble.