Tuesday, January 24, 2006

Don't Panic

When the National Association of Realtors says "Don't Panic, " what do you think?

In November, housing inventory – the number of homes available for sale – rose to its highest level since April 1986. Once again, the Chicken Littles came out of the henhouse shouting the “sky is falling”. They suggest that, with mortgage rates rising and demand slowing, a rise in inventory will inevitably cause home prices to crash.

Hmmm, a wee bit overly sensitive about the term crash?

Well, for those waiting for the crash, you can leave your protective headgear behind. Home prices are not going to crash. It’s simply not in the cards.

Why not? Check out the link. It's the same old stuff - money is still cheap, demand is still high, the economy is sound. All are true, but notice that all of these things are backward looking, and the current trends are all in the wrong direction. Best of all is this reason there won't be a crash:

Homeownership has proven itself as a viable investment alternative to stocks and bonds. Since 2000, there have been $4 trillion dollars in home equity gains. That is equivalent to $70,000 per household, an exceptional return on investment. For most homeowners, their home has an additional benefit – it provides shelter for them and their families.

There you have it - the NAR has so embraced the speculative mania of the housing market, they now view the fact that a house can provide shelter as a nice secondary benefit.

Still, shouldn't we be worried about all that inventory?

At the national level, we can see that home sales are slowing, the month-supply is rising, and as a result, balance is returning to the market. As a result, we do expect home prices to soften in the coming months. And slowing sales are good for the long-term health of the housing sector. So we should welcome a moderate slowdown, not panic from it.

But later on...

So, even though inventory may rise, home prices are not necessarily headed for a downturn. It is true that price appreciation may slow due to a softening of demand because of higher interest rates. But there will still be buyers out there. The good news is that there will be an available supply of homes for them to purchase.

So which is it? I guess with a press release like this, you can't get it all wrong.

Now for the local angle:
What markets had the biggest surge in inventories from the 3rd quarter 2004 to 3rd quarter 2005?

Chicago/Naperville/Joliet....132%
Binghamton, NY...............125%
Boston/Cambridge/Quincy......115%
Washington, DC................98%
Baltimore/Towson..............95%

2 comments:

rent to own said...

I looked at this article but didn't find their methodology.

30% over "seems" right, however. If the stuff I look at now for $599K was $419K, I'd be buying.

Interesting related note watching a House Hunters show on HGTV and the people were looking at a mansion for $400K in TN, which is underpriced in this study by 10%

The same home in my town, ANdover, would be at least $800K, so not sure how these all add up.

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