Posted on 08/29/2006 1:15:20 PM PDT by Mini-14
NEW YORK -(Dow Jones)- Sales and home prices fell at a faster clip than expected and inventories climbed further in August as the housing market continued to deteriorate, according to a Banc of America Real Estate Agent survey.
And market experts believe the housing downturn will likely last longer than homebuilding stocks currently reflect.
The study, released Tuesday, shows consumer sentiment toward buying a home soured in August.
"Consumers are shifting from a mindset of waiting for a better price to one where they do not want to buy at this time, no matter what the price is," the study said.
"We think this shift in sentiment is particularly worrisome, as it could take time before the mindset shifts back and could lead the downturn to last longer," Banc of America analyst Daniel Oppenheim said.
The study also found that prices fell sequentially for the 11th consecutive month. Prices tumbled in 82% of the markets surveyed. In July, only 79% of the surveyed markets fell.
The use of incentives continued to rise, hitting record levels. The study found that incentives were used in lieu of price decreases whenever possible in weak markets, but that incentives were also used in healthy markets to allow builders to increase volume and market share.
The amount of inventory rose in all markets, except Austin, in August. The inventory of existing homes for sale reached 3.86 million in August, up from 2.15 million in January 2005.
The latest inventory level would take 7.3 months to sell at the current pace, and Banc of America analyst Dan Oppenheim expects this inventory supply could reach nine months before next spring.
Oppenheim said the survey shows prices, incentives, selling times and traffic were all worse than real estate agents had expected. "We expect that conditions are likely to worsen further through the fall/winter and into next spring," he said.
"We think this excess inventory makes it unlikely that the market will rebound in the near term," he added.
Raymond James analyst Rick Murray said the study backs up his finding that consumer sentiment has definitely shifted.
"Consumers are just of the mindset at this point that it is not the time to be buying a home and this becomes increasingly problematic for housing," Murray said.
"Inventory levels right now would suggest that this downturn is probably going to last a period of years as opposed to quarters," the analyst said.
He doesn't believe the stock prices reflect this longer-term downturn.
"We would argue that the stocks are not pricing in the prospect that this could be a very prolonged downturn similar to some that we've seen in past cycles," Murray said.
He said homebuilding stocks are currently trading at about 1.2 times book value, which is "far above where valuations have troughed in past cycles." During the housing crash of the late 1980s and early 1990s, valuations fell to 0.6 times book value.
Mike Eckerman, founder of Residential Asset Management, a real estate investment company, said the "unrealistic appreciation" in home prices in certain major markets over the past few years was unsustainable. So he isn't surprised by the pullback.
He said it's investors with a day-trading mentality, who want to flip properties for big profits after a few months, who are being hit hardest. He said housing still remains a good long-term investment.
"People need to get out of the day-trading mentality," said Eckerman, who owns about 400 homes in Arizona that's he accumulated over 17 years. "I think if people take a longer horizon perspective as far as being patient and not panicking with the real estate marketplace right now, they're going to be perfectly fine."
Eckerman still believes the correction will be short-lived and significant price slashing limited to certain markets.
"Prices have gone down a little bit - but it's not a collapse," he said. As long the economy, interest rates and employment remain healthy, and inflation is benign, he doesn't expect home prices to plummet.
"This bubble epidemic that people keep talking about is completely overblown as far as what I'm experiencing on a day in, day out basis," Eckerman said.
Homebuilding stocks were down across the board Tuesday, with WCI Communities ( WCI), Beazer Homes USA (BZH), Hovnanian Enterprises Inc. (HOV), D.R. Horton ( DHI), M.D.C. Holdings Inc. (MDC), Lennar Corp. (LEN), Meritage Homes (MTH), Pulte Homes Inc. (PHM), Ryland Group (RYL), and Standard Pacific Corp. (SPF) all falling more than 2%.
Aw gee, shucks for them, boo hoo. It was these nimrods who caused the huge increases in the first place!
This is only the tip if the iceberg. Arms are resetting.
Over a trillion dollars worth of arms with teaser rates will expire and reset to the current rates in the next 12 to 18 months. When that happens the fur will fly.
"Over a trillion dollars worth of arms with teaser rates will expire and reset to the current rates in the next 12 to 18 months"
I know of 3 in Temecula CA that have been reset over $400/mo higher and are in forclosure.
Like I said the tip of the iceberg. I just pray that the economy is not playing Titanic.
I think there is more pain in the future.
"I just pray that the economy is not playing Titanic."
I don't think the economy is going to crash, the housing market has been RIDICULOUSLY over-heated for the past few years. When do you think will be a good time to buy? 8 months? A year?
Hi willie green!
Hi Pat!
Yet another doom and gloom article that doesn't mention that interest rates on fixed rate mortgages have been going down for over a month.
Provided that they can handle one upward adjustment they'll do alright since short term rates will be going down for the next few years.
Go to google and type in arm reset and you get articles such as this. The articles vary on the scope of the problem, but I think one can conclude certain areas of the country could be in for a rough time.
http://realtytimes.com/rtcpages/20060821_lendersworry.htm
Certain areas of the country will indeed feel the reset more. Those would be the areas where speculation ran amok and prices went to insane levels. California, Fla., Arizona, Nevada, parts of the Northeast are some places that come to mind. For the greater majority of people who simply bought a home to live in, their will be little effect on the economy over all.
I live deep in the heart of flyover country. We had a feeding frenzy about 18 months ago. It lasted maybe 6 months at most and then nothing appeared to be moving for the next year. Homes sales seem to be moving again. At least the ones that people can afford and are fairly priced.
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