Aug 28 2006
New Home Market: Worst since Early 1970s
Last Thursday’s single family home report was dismal. Here are just a few of the highlights:
- New single-family homes sold in July were down 22.2% from year-ago.
- New homes for sale in July jumped up 22.44%
With a little math, we find the gap is an astounding 44.66%, the worst since 1972. This would suggest that prices have only one way to go to restore equilibrium to the marketplace.
It will be interesting to see how the markets will digest the year over year data when, in September, the numbers hit even harder. One year ago you could read most analysts claiming the housing bubble was non existent. Lately the consensus has been that we’ll have a Fed engineered soft landing.
But the degree to which expanding credit has enabled this bubble reach such heights, combined with how dramatically bubble-created home equity — and it’s extraction via home equity loans - has buoyed the economy, should both be underestimated at your own risk. A soft landing is something to hope for, but that, too, is facing obstacles of historic proportions.
As prices slack, home equity loans will plummet, as will consumer confidence and related consumer spending. Meanwhile, a record $ 1.25 trillion adjustable rate mortgages (ARMs) are coming due this year and next. It will be interesting to see how much discretionary spending is unsettled as ARM users are faced with the choice of rolling over into a new, higher ARM, or locking in with an even higher fixed rate mortgage.
If you’ve stumbled onto this article, we encourage you to look around since this is only the tip of the iceberg related to problems facing the U.S. economy and the changing investment dynamic. It is not 1982 all over again.
