Monday, June 25, 2007
And The R Word Is Spoken
Household Formation. What’s that? It’s first time homebuyers. Whether it’s young professionals, new families, or new investors, none of these people, well, a lot less than usual, are jumping into the market. Household formation is down 70% (!) in the first quarter of this year from last year. On an annualized basis, it’s less than 500,000, which Yun calls, “rare.” You only see that in a real economic recession.Note that this does not mean in a "housing recession", but rather in an overall recession. There is no question that this and other statistics show a consumer recession driven by escalating consumer debt and inflation-reduced incomes. The GDP and industrial production numbers don't look so hot either. The CNBC report critiqued NAR's description of the situation:
“The market is underperforming when you consider positive fundamentals, such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices,” says Yun. “It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.”This is nonsense. The problem is with first-time homebuyers, and relatively few of them are reading blogs such as Calculated Risk. Furthermore, any place in the country in which employment is good (along with wages) and housing affordability ratios are anywhere within shouting distance of historic norms, home sales continue to be strong. It's all about what the consumer has left to spend and the expiration of pie-in-the-sky mortgages, which are now defaulting in awesome percentages and therefore forcing a correction in lending standards.
The economic fundamentals for consumes are not positive, which is why we see extremely poor retail sales and a continuing decline in home sales.