The drumbeat of grim news on the housing front continues apace. From the Financial Times:
Peter Kretzmer, an economist at Bank of America, said: “We are in the second wave of declining home sales. The first wave was the breaking of the upward momentum and flattened out late last year. But now we are seeing the initial stages of a second wave of decline, hastened by lenders becoming more cautious.”
The Wall Street Journal, in “The State of the Slump,” pointed to a few upscale markets where residential real estate is appreciating. However, the macro picture is not pretty, and I found these factoids noteworthy:
Jeffrey Mezger, chief executive of KB Home, one of the nation’s largest mass-market builders, says its average home price has fallen about 12% from a year ago. In some markets, such as Southern California, he says, “there are two markets emerging.” While the high-end housing market has remained strong, prices are down in the entry-level and first-time move-up market.
As measured by the S&P/Case-Shiller national index, house prices in this year’s fourth quarter are likely to be down about 7% from a year earlier, says Thomas Lawler, a housing economist in Vienna, Va. He expects a further fall of about 3.5% in 2008.
First, to the 12% price fall at KB Homes. As we noted earlier, sellers, particularly homebuilders, have been offering incentives to close deals, so the effective price decline is almost certainly greater than the nominal level. Second, Case-Shiller has been more bearish than other forecasters for some time (and has been proven correct), to our knowledge, this is the first time we’ve seen a projection of price decline of over 10% from a housing market expert. As we’ve stressed before, this is a massive level for the US as a whole (a national slump is a completely different beast than a local market bust).
Although the Journal finds a bit of cheer in the relatively good performance of higher-priced homes, if credit tightening continues, they too will be affected.
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Isn’t there a chance that some of the anomalies in housing price data are being caused by the differing way in which tighter credit affects different parts of the housing supply?
In our area, zillow and local realtors point out that the price of the average home sold is still going up.
Could that be because lower-priced homes for lower-income households are not moving anymore, since those lower-income households are having trouble getting loans they can afford? That would drive the average sale price upward–for awhile anyhow.
I notice there was an uptick in this average sales price figure just about the time that the availability of subprime mortgages was dropping suddenly.
The supply of homes for sale is also way up here, giving some support to this theory.
I’m waiting to see if tightened credit begins to have an impact on the more well-to-do, leaving them unable to borrow the large sums for upper-mid-class homes, thereby bringing the price for those homes down to what the market can bear.