Housing Market Gives Cooling Sign

I love beating the WSJ: In Friday’s paper, the article Housing Market Gives Cooling Sign covers many of the issues we touched upon early last month in Real Estate Begins to Cool.

Here’s the Ubiq-cerpt:™

U.S. home prices leapt 13.4% in the second quarter from a year earlier, the largest gain in 25 years, but the housing market showed signs of cooling in July, two reports released yesterday showed.

The 13.4% average price rise, based on an index compiled by the Office of Federal Housing Enterprise Oversight, or Ofheo, was the biggest recorded since 1979. It compares with average annual increases of about 6% in the past three decades. The index is based on both purchase prices and appraisals of home value made during refinancings; stripping out refinancings, the index was up 11% from a year before.

The National Association of Realtors said its pending home-sales index in July declined 1% on a seasonally adjusted basis from June, though it was still up 3.5% from a year earlier. A sale is considered pending when a contract has been signed but the transaction hasn’t been completed.

The housing market has shown other tentative signs of cooling recently. Inventories of unsold homes have been rising in some cities, and houses have been sitting on the market longer. The Mortgage Bankers Association reported earlier this week that its index of demand for mortgages used to purchase homes stood at 470.6 as of Aug. 26, down 11% from a peak of 529.3 on June 10.

and Ubiq-graphic:™



Housing Market Gives Cooling Sign
Yearly Price Rise Set Record,But July Was a Bit Less Hot;
The Cheap-Mortgage Factor

THE WALL STREET JOURNAL, September 2, 2005; Page A2

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What's been said:

Discussions found on the web:
  1. Larry Nusbaum, Scottsdale commented on Sep 3

    There are two ways one may interpret the chart above “Spending From Wealth”:
    1. With home prices up in so many regions, it simply requires a higher percentage of both savings and monthly disposable income to afford a home.
    2. As wealth as been on the rise in America, and entrepreneurial activicty has increased dramatically, and with the recent explosion in LLC formations, a lot of income in this country is not reported in terms of traditional W-2 income. That shrinks the reported base of those earning personal income that is reported.
    Remember when the stock market was booming in 1997-2000, and polls indicated that people felt wealthier? We are there again with real estate and people will tend to save less in periods in which they feel wealthier………..

  2. spencer commented on Sep 3

    One of the issues you need to look at in thinking about this is the share of ownership.

    Over the years as people have taken equity out of their homes and taken interest only, etc loans out on their homes the portion of the value of their homes that people own has fallen.

    I have not looked up the exact data, but 25 years ago the debt secured by peoples homes was equal to something like 50% of the value of the homes. Now it is closer to 75%. Do not hold me to these facts but they are the correct order of magnitude.

    So people saying that home rising home values are a
    substitute for savings are massively overstating their case.

  3. Larry Nusbaum, Scottsdale commented on Sep 3

    “Now it is closer to 75%”
    I know why this is, but what does it mean.
    Spencer: I do not remember a time when this country actually had a net savinds rate.
    “So people saying that home rising home values are a
    substitute for savings are massively overstating their case.” – THAT’S NOT WHAT I SAID.
    I am stating how people may feel.
    These warnings have been going on for 5+ years and to what end?
    Check this out: “For now, the frothy buying conditions in some of the nation’s biggest housing markets, especially for high-end homes, worry economists, who remember how the housing market crashed in the late 1980’s after some markets overheated.” Wall St Journal, March 2000.

  4. Larry Nusbaum, Scottsdale commented on Sep 3

    crashed? That how the WSJ deemed it.
    Well, the market went down a bit in 1990/1991 when Iraq invaded Kuwait and oil hit $40 per barrel. However, it did not crash. Southern California fell off the map because defense contractors were all closing causing people to sell at the same time when laid off. THAT IS THE ECONOMIC CYCLE AT WORK AND NOT FROM “OVERHEATING”. When will they get it right?
    BUT CALIFORNIA’S WORST YEAR: 1994 down 6.3%.
    Hardly a crash…………

  5. Aaron Koral commented on Sep 3

    I think the more interesting part of the article was the graph depicting our personal saving as a percent of disposable income. An interview with Lee Mikles and Mark Miller in this week’s Barrons by Sandra Ward summed up this event ominously: “…we have dipped into a negative savings rate for the first time. That is not only unsustainable, it is sustainable for only a few months. That’s important to note because it tells you consumers are borrowing money to make debt payments. The US consumer has become payment driven. He is driven not by the aggregate amount of debt he posses but by the amount of the payment. And now the consumer has not only taken his savings rate to nothing, it has turned negative.” For further information on this article, go to http://www.barrons.com.

  6. anne commented on Sep 3

    The economy is strained and consumers must be at least slightly unnerved by the last sad days, on the other hand there will be a fiscal stimulus as spending from the legislation before and after the tragedy begins. Then again, there are energy prices. What a balance to try to understand. I am hopeful the effect beyond personal tragedy will be positive enough for growth to continue. As for the personal cost, oh dear.

  7. Tony commented on Sep 4

    The prediction is……..a depression is looming. It’s a part of our human cycle, a cleansing if you will…an economic enema. So brace yourselfs, how much $$ do you have under “your mattress”?

  8. Larry Nusbaum, Scottsdale commented on Sep 4

    Posted by: Tony | Sep 4, 2005 1:11:37 AM: “The prediction is……..a depression is looming.”

    Not if the Red Sox repeat……….

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