Unsold homes at record levels
This article was posted yesterday from NewMax.com. As with the previous warnings, they are predicting more gloom and doom. It seems incredibly irresponsible to anticipate that all markets are going to do the same thing at the same time. While it's true we have seen the San Francisco real estate sales climate change, activity is still quite strong and prices are holding steady with few price reductions.As we stated before, it is precisely because the Fed keeps raising interest rates that home sales are cooling, yet they are the ones reporting this potential catastrophe as if they are not complicit in what is happening!
To be fair, we decided to post this information so you can make your own decision. However, real estate investing has always been a long term strategy, and we are still bullish on the San Francisco market.
- Mick Orton
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The nation’s housing market is quickly going from boom to bust. Houses are on the market longer and prices are being slashed. So the question is how much is this housing bust going to hurt the overall economy?
For over two years now, we at Financial Intelligence Report have been warning that soaring U.S. real estate prices were unsustainable and that a collapse could soon occur.
Sir John Templeton last October warned FIR readers that a housing bust was imminent. Now the Associated Press and scores of major U.S. and international newspapers and magazines - including the New York Times, Fortune, and The Economist - are echoing those same sentiments on their page-one stories. In fact, The Economist magazine bluntly declared that the current worldwide boom in residential real estate prices is "the biggest bubble in history." "We recognize the risk ... and we are watching it very carefully," Federal Reserve Chairman Ben Bernanke told Congress recently.
The Fed has hiked interest rates 17 times during the current rate cycle. They’re currently at the highest level in more than four years. But this week, the Fed halted its rate hiking cycle. The Fed said in its statement that they see a “gradual cooling of the housing market,” which will slow the economy and moderate inflation.
We’ve seen evidence of a slowing housing market practically everywhere. Yesterday, Toll Brothers reported that new contracts plunged 45 percent.
Construction spending dipped. Both new housing starts and existing home sales fell. The AP points out that gains in housing prices have been the smallest in years. The inventory of homes on the market is climbing to a record level, which would likely force sellers to slash prices.
“We are going from a seller's market to a buyer's market,” says David Lereah, chief economist for the National Association of realtors. “It looks like the worst is behind us and sales are starting to level off.” I
n addition, rising interest rates are pushing up the payment on adjustable-rate mortgages. “As interest rates increase, mortgage payments increase. Between $400 billion and $500 billion in ARMs are due to be reset by the end of 2006. The following year will be even more dramatic, when more than $1.5 trillion will be reset,” says BusinessWeek.
The Wall Street Journal says, “The portion of adjustable-rate mortgages that were at least 90 days past due has climbed 141% in the past year, according to a recent study by Credit Suisse that looked at loans made to borrowers with good credit. That compares to a 27% rise in such delinquencies for fixed-rate mortgages.”
“So far, the correction in housing has been orderly, but there is a significant risk that this orderly correction could become more chaotic,” said Mark Zandi, chief economist at Moody's Economy.com, to the AP.
“The housing market has been driven by euphoric optimism about future house price growth. That could quickly change to dark pessimism and we could see sales and prices fall much more than expected,” Zandi said.
A significant slowdown in the housing market is likely to spread to throughout the economy. Says the AP, “even a moderate slowdown could have a big impact since housing has been one of the economy's standout performers over the past five years. Low mortgage rates allowed millions of homeowners to refinance and use the savings to go on a shopping spree.”
- NewsMax.com
posted by SFResidence.com @ 6:07 AM
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