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February 14, 2006
The problem with economic statistics are that they tend to tell the story after the reader already knows it. But Ian Shepherdson of High Frequency Economics in Valhalla, NY, tries to make sense of the numbers as they come out in his Daily Notes on the United States--and not months later. He took a look at the downward trend of mortgage applications for residential home purchases that the Mortgage Bankers Association tracks and took the statistics one step further.
A few days ago he stated:
If mortgage applications were to remain at this level, we would expect total home sales to settle at annualized rate of about 7-3/4M per month, down about 10% from their trend in the second half of last year and only marginally lower than December. This would count as a slowdown by anyone?? yardstick??he last 10% drop in home sales over a full-year was way back in 1982??ut it would not be the meltdown we still expect. In our scenario, mortgage applications do not level off close to their current level. Instead, we expect them to continue falling, at an accelerating pace. By summer, we expect the MBA?? index to be in meltdown territory, in the low 300s.
Sounds a bit grim. Perhaps someone will circle back to this entry in midsummer to see if Shepherdson's predictions were right.
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The other aspect of economic statistics is that there is typically enough variation in the data to support a variety of conclusions. Hopefully, the hypothesis that there is just going to be a slow down is correct. However there is also a lot of confliciting data that predicts a sharp drop. I guess only time will tell what will happen to the real estate market.
Posted by: Ryan James at February 14, 2006 08:12 PM
Wow - I had assumed mortgage purchase applications would go up in the spring. Even then, I thought we wouldn't have a soft landing because inventory in the bubble areas is currently so high that demand would have to double or triple to maintain the soft landing. But if demand goes down sharply as well - ouch! Apparently applications were down again for the third week and at a two year low.
Posted by: dcgirl at February 15, 2006 09:58 AM
When one graghs the home builders "new Home Sales" claims monthly 21 million annual rate with the Monthly "new mortgage Applications reported weekly. Even a grade school student could see Something was a miss.!
Home sales were rising all year until Q4, 2005, while Mortgage apps. were flat to lower since November 2004. The jaws of this disparity meant 1 of 2 things. 1) New home sales (customer deposits on newly released lots would turn tail and run south. (see KBH news 2/13/06 Toll Bros. a week earlier.., "cancellations on the rise") or 2) The majority of new home buyers were paying "cash"...
The Toll bros. news that sales were down 30% corresponds with the % of 2004-5 home sales by SPECULATORS....
now trapped in a negative cashflow of several hundered dollars monthly...Will helicopter Ben (New FED chair) be able to stop this oncoming avalanche of selling.??
Posted by: da Bear at February 15, 2006 11:22 PM
Are we in a housing bubble comparable to past historical financial bubbles?
Posted by: m at February 17, 2006 03:01 PM
We're in for more than a slowdown. We're in for a crash. The only question is how hard the landing will be.
My guess is that the bottom is going to be near 100 dollars per foot for new home sales, with a little added for location (coastal/upper-end urban), and a little less for older homes.
I watch Brevard County, Florida like a HAWK, and prices are dropping faster than fat lady at a banana processing plant.
Bad analogy, but good information, I know.
Last December (04), you could hardly find a beachside house for under 300k. Now there are dozens in the area I watch. Inventory has tripled in one year, and some houses that have been on the market for six months have dropped their prices ten grand per week. A couple house in particular I'm watching went from 309k to 249k.
I'm waiting until the market in that specific location hits 125 bucks a foot, and it will. Right now it's at 190 a foot.
On the bright side, valued markets and undervalued are relatively safe if they sell at 100 a foot for a new home, because building materials are more expensive, along with energy, so if you bought a 3000 square foot house in Atlanta for 300-350 grand, you're completely safe. You'll maybe lose ten percent.
On the coast, you're going to get hit....HARD!
Posted by: HouseGuy at March 3, 2006 12:31 PM
Has anyone looked at this time last year? I bought my property then for a lot less than the original listing because everybody said the bubble burst. Deja vu? I say, wait until the summer. Families have to wait for school to dismiss. Northern and MidWest families where employment is a huge problem usually wait for the weather to clear before relocating. Not everyone lives in sunny Nevada, Florida, and California.
The natural-disaster factor has to be considered as well. If coastal homes are not selling can you guess why? Here in Georgia, we have people from South Florida, Texas, and New Orleans coming for jobs and housing. Maybe a GOOD statistician should look at the numbers more closely. I'd bet there are regional and seasonal factors at work.
Real Estate trusts and investors are buying units to rent out like crazy. Are they off the radar? How are they reported?
Last but not least, are mortgage companies treating buyers fairly? Especially first-home buyers. According to responsiblelending.org there's work to be done there.
Granted some regional home pricing went berserk and maybe that's whats settling down now but a crash? I doubt it --- unless you live in a coastal area --- but I hope not :)
Posted by: L at March 6, 2006 08:14 AM