It has long been our view that Real Estate is the prime driver of this economy, and its eventual cooling will be a major crimp in GDP, durable goods, and consumer spending.
4 Charts from Northern Trust are worth looking at to show how far along that process actually is:
Median Home Sale Price
New Home Inventory
Single Family Home Sales
Here’s each chart with my annotations:
Median Home Sale Price: Putting aside for the moment the issue of "median" (it gets skewed when too many high end or entry level houses are the dominant movers) the chart shows rapid decelleration of price gains. I expect to see more of this over the next few quarters, as Sellers and Buyers engage in a stare down, as Sellers continue to gradually lose pricing power.
New Home Inventory: What can you say about this? Builders have created huge inventory. Its no surprise that the enormo increase in Supply has impacted prices (Demand). On this 45 year chart, the recent rise (since 2003) is historic!
Single Family Home Sales: The long uptrend in Sales has broken; I do not know how far it retraces, but I imagine it will continue to do so as mortgage rates tick higher or the economy cools (or both).
Mortgages Apps: Another long uptrend broken; Same story as above: Higher rates mean less sales and refinacing. The one mortgage bright spot I see is the refinancing of ARMs into fixed rate loans.
All charts courtesy of Northern Trust
Housing Market Is Cooling Down, No Doubts About It
Northern Trust, May 25, 2006
New Home Sales – Headline Is Deceptive, Momentum Is Weak
Northern Trust, May 24, 2006