Another small nail in real estate

see "U.S. Nov. Existing Home Sales Fall to 6.97 Mln Rate (Update1)" (Bloomberg, 12/29) The continuing drip-drip-drip of slightly negative news about real estate suggests the end of the bubble. I've been predicting the end of the bull market in residential real estate for some time, but to be clear (again) I am not looking for a crash in prices. Instead I expect a long period of price stagnation and frustration. [I even hesistate to use the word "bubble" because it implies a bull market that has gone to obviously irrational levels based on the human herd. But this is not the tulip craze or the South Seas Company bubble; prices are too high, but they are not 10 or 100 times too high, nor is a house a rapidly wasting or useless asset. So, although I did say "bubble", I suggest you think of it as an over-extended bull market...that takes some of the emotion out of the discussion.] Some of the most recent and most aggressive and leveraged buyers will probably be severely spanked, financially speaking, but most homeowners will just be sitting on something which is not increasing in value as they had hoped. Overall, I expect to see prices anywhere from down 15% in the most frothy areas to about flat in non-bubble areas over the next 5 years. The interesting question will be whether, if this happens, there is any reverse wealth effect on the economy. Here are a few key quotes from the above article: U.S. previously owned home sales declined in November to an eight-month low, leaving the number of homes on the market at the highest level since 1986. ------------ The supply of homes for sale, another measure of housing demand, increased to 2.903 million in November from 2.868 million the month before. That represents 5 months' worth at the current sales pace, up from 4.9 months' worth in October. A record number of new homes were left on the market at the end of the month, according to a Commerce Department report on Dec. 23. The rate of price appreciation probably will slow next year, economists and industry executives said. Housing affordability was at a 14-year low in the third quarter, according to the Realtors' group. ------------ The Realtors group's index of pending home resales fell 3.2 percent in October. The gauge, reported in Dec. 6, may be more current than existing home sales because it measures transactions at the time the purchase agreement is signed. Regionally, home resales declined in all four regions during November. They dropped 3.7 percent in the West to 1.85 million; 2.7 percent in the Northeast to 1.09 million; 1.3 percent in the Midwest to 1.56 million; and 0.7 percent in the South to 2.74 million.
  • The Freak
    Comment from: The Freak
    12/29/05 @ 09:26:57 am

    I think your comments indicate your general agreement with my position that houses are great assets to buy for the purpose of keeping the cold out and maintaining a place for one's stuff. Even if prices stagnate, those important objectives are met and given the value of the mortgage interest deduction may even be a slight financial positive over renting. BTW, your blog is fixed in IE. I'd love to know what you did. Freak.