Until prices come down to a level where people with 5-20% down, 6% fixed rated, making normal American incomes can afford, we are nowhere near a bottom. The only good thing of late I have seen is new home starts are finally slowing, and home builders in desperate attempts to get cash flow have slashed new home prices. We now are going to face a almost comical dichotomy in some markets. New homes selling for 30% below existing homes. It's already happening in southern CA in some spots. This just means that existing home sellers are still in the denial stage and think they can get 2005/2006 prices. This is why your 'median' prices are not falling.
Remember, unlike stock prices, home prices are very illiquid. Stocks are priced instantly, by the second. Homes can takes quarters/years to adjust. Eventually people who cannot afford homes they 'received' (and I mean received since many put NOTHING DOWN), will see they cannot afford these homes - and be forced to sell. Also keep in mind as each month passes, more and more people who bought with 0% down, 1% down, 2% down will be going upside down on their home. So they need to make a decision - do I continue to make payments on something I put almost none of my own money into... for an asset that is depreciating by the month. When they come to their "aha" moment, that's when the real price adjustments will happen. Until then you will hear hopeful talk about how we will have a bounce next spring when people are out and about in prime house hunting season.... and how prices are "holding up" and that is bullish! A bunch of lies.
The reality is it would be better for all of us if housing prices fell. Why? So it would not be such a strain on our budgets. While it would not feel good to lose asset wealth, for anyone who is looking to buy a new home would you rather have a $1400 monthly mortgage payment or a $2700 mortgage payment? Well you would get the former if the median price was where it should be. Please read this if you are new to the blog: Analysis: What Should Median Housing Price Be Today.
Again, I am not going to post these monthly figures every month because it's already getting old very fast. We are in about inning 2 of this correction. A 7 year bubble of epic proportions does not get fixed in 11 months, no matter what the pundits claim. A correction does not end when everyone is looking to "buy a bargain"... which is the stage we are now. It ends when no one wants to buy real estate because "all it does is lose value". We are nowhere near that stage (despair). We are still in the early stage... denial. Just as we are when we talk about coming recession (errr, slow down). Until people see "facts and figures" (which will come to fruition next spring/summer) they will continue to deny, deny, deny. These are people who live in NYC and don't see what is happening in the real world. Just think about the coming few years where every major city, county, and state needs to make budget with real estate tax dollars plunging. Except for areas in secular bull markets (say Houston with its energy market), it is going to be an interesting time trying to make budgets with overspending politicos drunk on excess from 2002-2006. [California in State of Fiscal Emergency]. I'd argue 5 of our largest 10 states are already in recession, California, Florida, Michigan, Ohio, and Pennsylvania. I do expect the sunbelt states who are benefiting from migration trends to do the best on the back end of this, but many of those states were also the most inflated so there is major cross currents, even for them, in the near term (1-2 years).
New Home Sales Plunge by 9%
- Sales of new homes plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector. The Commerce Department reported Friday that new-home sales tumbled by 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.
- The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 percent, to a pace of 715,000.
- The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less. (and this remains the problem)
- New-home sales dropped by 19.3 percent in the Northeast. They plunged by 27.6 percent in the Midwest and they fell by 6.4 percent in the South. However, sales increased by 4 percent in the West.
- Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.
- A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.
