Posted on 09/08/2005 1:10:12 PM PDT by ex-Texan
WASHINGTON -- The nation's red-hot housing market may finally be nearing its peak, meaning the end of double- digit annual percentage price gains for homeowners and potential trouble for more recent purchasers who stretched to buy.
That's the assessment of economists, who concede they have been forecasting a cooldown in housing for some time only to be confounded as sales and prices continued to boom.
Sales have certainly been sizzling this year, putting the country on track for a fifth straight year of record purchases of new and existing homes.
Home prices have been surging as well. The government reported last week that prices jumped by 13.4 percent in the April-June quarter this year, compared with the same period a year ago, the biggest increase in 25 years. That is more than double the average annual price gains of 6 percent recorded in the past three decades.
Signs of a slowdown
But scattered among the statistics are some signs of a slowdown. In July, sales of existing homes fell by 2.6 percent even though the nationwide median price rose to a record $218,000.
Homes in some areas are staying on the market longer before they sell and the Mortgage Bankers Association reports that its index of demand for home mortgages now stands 11 percent below a June peak.
And none other than Federal Reserve Chairman Alan Green-span recently said that "the housing boom will inevitably simmer down" with prices slowing and possibly even falling.
The issue of how much of a slowdown will occur and whether home prices will fall or just not rise at double-digit rates will depend to large extent on the course of interest rates in coming months.
"I think what we have in store is a slow deflating of the housing bubble, not a bursting of the bubble," said Mark Zandi, chief economist at Economy. com.
"But if mortgage rates rise more sharply than I am expecting, then the downturn in housing could be more severe."
The devastation from Hurricane Katrina could turn out to help the housing industry, mainly through falling interest rates. Investors pushed rates lower this week in anticipation that Katrina and the resulting surge in energy prices will act as a drag on economic growth and could persuade the Federal Reserve to pause in its 14-month campaign to push rates higher. As a result, rates on 30-year mortgages dipped to 5.71 percent, down from a high this year of 6.04 percent set in late March.
David Seiders, chief economist for the National Association of Home Builders, said rebuilding from Katrina's devastation probably will not have much effect on the overall housing market since residential building permits for all of Louisiana and Mississippi last year amounted to just 1.8 percent of the national total.
But analysts are forecasting that housing sales will begin to decline from record levels by the end of this year and into 2006. The slowing sales pace is expected to end the price gains the country has seen.
Overvalued locales
Richard DeKaser, chief economist at National City Corp. in Cleveland, said he believes 53 metropolitan areas, representing 31 percent of the country's housing market, were "extremely overvalued and confront a high risk of a future price correction."
And what might that price correction look like? DeKaser said over the past 20 years, 64 cities have seen home price declines of 10 percent or more over a period of two years. But all of those declines occurred along with a weak overall economy, something not present now.
But if rising energy prices spread into more widespread inflation pressures and the Fed feels it needs to raise interest rates more quickly, then analysts said housing could be in for a rougher landing.
Those most vulnerable in such a situation would be homeowners who took advantage of the growing popularity of various types of new mortgage products such as interest-only loans. They allow buyers to pay only interest initially while charging a lower interest rate that remains fixed for a certain period, often the first three years of the loan.
The problem comes when the introductory period ends. Then holders of these loans are faced with a double-payment shock. The interest rate they must pay is likely to rise and they will have to make not only interest payments but also begin paying back the principal.
Homeowners with already stretched finances may find themselves unable to make the new monthly payments, forcing them either to sell their homes or default on their mortgages. Either development would dump more supply into a slowing market and thus further depress prices.
But many analysts don't believe that scenario will come into play to any significant extent unless the economy seriously weakens. They note that even with the growing popularity of interest-only loans and various other types of mortgages that feature low down payments, the number of loans going into delinquency has been falling.
Some see a slowdown in home sales as beneficial.
"If the frenzied buying levels off, the market will become more balanced between supply and demand" and help to ease price pressures, said Lawrence Yun, senior economist at the National Association of Realtors.
It will be months and months before the levees have been hardened and the city is safe to return to. It will be weeks and weeks before insurance adjusters are able to inspect houses that are still under water. Knowing the insurance industry as I do, most of this 'damage assessment' will be wasted energy. The box being checked the most on claim forms is labeled "deny this claim." Flood insurance is almost impossible to purchase in that region of the country.
Frankly, if I had owned a house in N.O., I would be thinking seriously about moving. The city just lost about 400,000 of its poorest residents. Most of them will not be returning either. What will the demographics of Jefferson Parrish look like in two years? It's anybody's guess.
I've got the same problem. My family, friends, and a job I love are all in San Diego so I have no desire to leave. I make a decent salary but I can't afford anything other than a dinky apartment conversion.
See my post # 21.
I can see why you love it there, it's beautiful.... and the air quality is great. Have you considered looking for a fixer-upper? Thats what we're trying to do.
SSSHHHHHH. Don't tell anybody. They might start buyin'.
It would be interesting to learn what the impact of Katrian is on this Housing Bubble ...
Sweet, Sen. Mary just lost 400.000 votes.
Sell Mortimer!!
I think I might be playing the waiting game for awhile. Fun!
The housing may not be rebuilt in NO, but people will need homes elsewhere, whether they are new, old, or mobile homes- they will need to live somewhere.
So are you Ill Mitch? I've already seen that site through word of mouth. I think it's totally hilarious.
If their claims are denied, and they are out of work, please tell me how these people will be able to purchase another home. How many people have that much cash laying around?
Doesn't FEMA provide loans/assistance when insurance doesn't pay (and I agree, those that are even insured will have their claims DENIED the vast majority of the time)? I am sure skilled workers will be finding jobs within a reasonable amount of time.
We know some folks from Biloxi who evacuated and the husband came back to check on the house. Their house had some damage, but nothing major (broken windows, a few shingles gone). Anyway, a neighbor who's house was totally destroyed, offered them cash for their house upon hearing that they planned to move away ASAP. They closed the deal immediately. I think we will see a lot of this. Houses that survived that storm with minimal damage will sell quickly. And certainly there will be a housing boom in other southern states (away from the coast of course).
I believe the answer is Tom and Susan are SOL. They will still have to repay the loan. I do not have answer for a standard 30 year loan in these circumstances. But I believe in good faith that the answer is the same.
But, if I am not correct, please forgive me.
The rats have lost their last blue state in the South.
I don't see why they can't declare bankruptcy. (Although I don't know how much has changed with the new rules.) They can let the bank foreclose on the property and then declare BK after the bank comes after them for the remainder OR they can just go ahead and declare BK ahead of time and save the foreclosure hassle. (With bankruptcy, you usually aren't allowed to have more than X in equity in your home, which wouldn't be the case in this situation.)
If they are unemployed with no real property, what else are they but bankrupt. After BK, they can get an almost normal loan rate after 2 years (it will stay on credit for longer but banks like 2 years to pass.)
Despite all we hear on the news, the middle/working class are the true victims. The welfare class will continue as usual and the rich can afford to get on with life.
I just turned Jeff Katz's radio show off. It is fatiguing!
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