Is there a housing bubble? We previously noted that Home prices are local, and the more likely scenario are regional "bubblettes."
Want more details? Have a look here. This map (via the WSJ) provides a snapshot of the housing market of 50 U.S. states
and the District of Columbia, with a look at price, sales and mortgage
data for a dozen states in the fourth quarter of 2004, and the percent
change from a year ago:
The Journal notes that "Housing-market conditions generally were ripe for price gains in late 2004, helped by falling state unemployment rates and still-low mortgage rates. The average rate on a 30-year fixed mortgage was 5.73%, down from 5.92%, at the end of 2003, says Freddie Mac."
And, as we observed yesterday, the 30 year bond, the key basis for mortgage rates, is actually lower today then they were when the Fed first
started its tightening cycle last Summer.
How did home prices fare in Q4 2004? The median price of existing-home (single-family), homes, condos and co-ops rose 8.8% to $187,500, according to the National Association of Realtors.
Total existing-home sales were higher across much of the country, according to the NAR, with
all but a handful of states showing increases in sales activity over the same period in 2003. Some 7.76 million units were sold in the fourth quarter, up 7.3% from 7.24 million units a year earlier. Many areas set records for total existing-home sales in 2004, NAR data show.
Just as every "General fights the last war," so too do pundits and talking heads battle the previous issue. In this case, manhy who failed to call the bubble in tech/telecom/dot.com now see bubbles everywhere else.
Bottom line: While I doubt there is a full blown bubble in housing, there has been a swift run up in prices due to ultra low interest rates. The significance of this for housing is simple: overvaluation presents a risk of future declines.
A decline of 20-30% is cewetainly possible. But a potential price break does not a bubble make; Recall that from March 2000 to October 2002, the Nasdaq plummetted ~80%. Now THATS what a popping bubble looks like . . .
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click for larger graphic
Source: WSJ
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Source:
Median Price of Home Rose 8.8% to $187,500 In the Fourth Quarter
KEMBA J. DUNHAM
THE WALL STREET JOURNAL, February 16, 2005; Page D3
http://online.wsj.com/article/0,,SB110843999027254974,00.html
WSJ
http://online.wsj.com/public/resources/documents/info-housing-04Q4-frameset.html
A decline of 20-30% in the most bubblicious markets could certainly be indicated. Homes in southern California fell that amount over a five-year period during the last decline. But back then, hot Calif markets had only climbed 10-15% above long-term trends. Today, they are 25-35% above trend.
Caution is particularly warranted in areas where the fundamentals don’t confirm the price gains. Las Vegas, for example, has seen spectacular price gains and is clearly topping. But it also has grown tremendously. San Diego, on the other hand, has seen an outflow of residents during the past year, yet homes have increased 28% in value. Similar situation exists in San Francisco and Orange County. As the Dixie Chicks might say, there’s your trouble.
Catching my eye: morning A through Z
Here’s what’s caught my eye this morning: I’m continuing to update my post on blogosphere reaction to Negroponte’s nomination. Belmont Club has received a non-elective facelift. Scroll down. Wretchard has been very, very busy. And, yes, you do need to…
One factor in bubblitude is unsold inventory. Home builders today do far less speculative construction than in the past, prefering, especially at the high end of the market, to build to order. This would tend to reduce the severity of any drop in the market.
Burn, Boil and Bubble — skim the froth of houses
Price declines will destroy a significant amount of paper equity that would otherwise would have been used for consumption spending. Secondly, if used homes are not selling, that will place pressure