Tuesday, November 28, 2006
RE: October Existing Home
There are 7.2 months of supply for single-family homes, up from 7.1 months of supply in September. Prices by region compared to October of last year:
National: median price dropped 3.4%; average price dropped 3.2%There are 9.1 months of supply for condos/coops, up from 8.5 in September. Prices by region compared to October of last year:
Northeast: median price dropped 5.2%; average price dropped 2.7%
Midwest: median price dropped 2.2%; average price dropped 0.3%
South: median price dropped 6.7%; average price dropped 8.6%
West: median price dropped 0.1%; average price rose 0.2%.
National: median price dropped 5.3%; average price dropped 4.4%There are substantial sales incentives included in contracts (such as credits at closing for buyer's costs) which are not included in these figures, so real losses are higher. The stronger regions seem to be softening, such as the Seattle area. As the cookie crumble these drops will start to mount quickly, and you can expect new listings to mount in the spring. It's very, very hard to even imagine a scenario in which prices could stop falling next year, especially given the growing economic weakness in the general economy.
Northeast: median price dropped 4.0%; average price dropped 2.5%
Midwest: median price rose 3.8%; average price rose 3.7%
South: median price dropped 12.1%; average price dropped 10.2%
West: median price dropped 12.2%; average price dropped 7.1%.
This is what is going to force much higher numbers of foreclosures; costs for selling are usually a minimum of 5%. If you've lost 5% in price and have to pay 5% to sell, you'd wind up having to bring $40,000 to the table in the form of equity or cold hard cash for the privilege of unloading a house selling for $400,000. Very few recent buyers have the cash to do that. Fewer and fewer recent buyers have the equity.
These price declines are setting post WWII records. Even in the Great Depression, housing prices didn't fall all that fast nationally at first. We are in unprecedented territory.
Here is an interesting article about Bernanke's career and views on the danger of deflation from December of last year. I think it likely that the Fed will start to cut aggressively in the first quarter of 2007 if they have any margin at all in which to do so.
It's like consumer electronics. Just wait for the price to go down and keep going down; the longer you hold off buying, the cheaper it gets.
The Headless Unicorn Guy
The flattening effect is kicking in already.
We will need stimuli next year to take up the slack in domestic investment caused by the recession in the housing industry, specifically new building.
Links to this post: