“It seems that the housing party is over”

Wednesday, 25 August 2004

Today’s Wall Street Journal has an article, “Hot Housing Market Simmers Down.” I can’t reference it directly because I’m not a subscriber, but it basically notes that, according to the Association of Realtors, existing single-family home sales declined 2.9% in July, while in California the housing inventory has increased to 3.3 months, surpassing three months for the first time since February 2003.

Of course, the Realtors are trying to spin this like crazy (hint: just because “inventories are depleted” doesn’t mean that everything’s OK).

Melbourne’s Age reports (registration required) the Commerce department’s new home sales figures, which are down 6.4% from June. This is apparently a steeper drop than expected, leading to interesting quotes like the one from Wachovia above.

Greenspan, meanwhile, notes that “ House prices are difficult to measure.” Fair enough, but that doesn’t mean that you can’t measure the housing market at all (the Reserve Bank of Australia has a enlightening report on this subject; while some of it is AU-specific, a lot of the material applies elsewhere too).

Looking ahead, there was really interesting opinion piece in yesterday’s Journal from Karl Case and Robert Shiller (of Case Shiller Weiss fame, I think; these names keep on coming up regarding real estate economics), called “Mi Casa Es Su Housing Bubble.” They have some interesting things to say about how a deflation would play out. One juicy bit;

Over the last 30 years we have learned a good deal, much of it from our own research, about how downturns in the market play themselves out. If rates continue to rise and the economy stalls, housing demand will drop and, assuming that housing markets behave as they have historically, the markets will adjust slowly. …[T]he “bid-ask” spread widens, time on the market increases, fewer deals get concluded and home sales drop.

Finally, check out “How to Stop Relatives From Bragging About Their Big Profits in Real Estate” in today’s Journal (once again, no link — how boring). Good stuff.

UPDATE: Planetizen came up with a link for the “Mi Casa” Journal article. Also, check out Freddie Mac’s comments about the housing market still being rational. Hmm.

2 Comments

Terris Linenbach said:

I was in the central valley in california over the weekend and real estate continues to rise there. $400k is becoming normal for a nice 3 bedroom house and the norm used to be $150 a few years ago.

This is easily explained. Bay Areaites are selling their homes and moving to the center of the earth. A decision they undoubtedly regret in the middle of August when temps in their new two story homes exceeds 85 degrees F and then the electric bill arrives totaling $450.

Is the home market inflation or speculation? I don’t think prices at their current levels will recede. Houses might stop selling but I don’t see prices falling.

However, there’s that nasty concept of off-shoring which is resulting in the loss of jobs and forcing unlucky Americans on the West Coast to move further east. The end result is that prices across the country will continue to rise.

Until the fed is unable to print money to pay for more oil wars, that is.

Wednesday, September 1 2004 at 10:02 AM

Adam Rifkin said:

I love the article from the SJ Merc yesterday titled “Luxury home prices set record – AREA AVERAGE IS $2.54 MILLION”

http://www.mercurynews.com/mld/mercurynews/business/9542623.htm

And I quote: “Stocks may have been iffy investments in the past year, but not high-end homes. The average value of ``luxury’’ homes in the Bay Area rose to a record $2.54 million in the second quarter, according to a study to be released today.

That figure was up $357,000, or 16.4 percent, from a year earlier, said the quarterly ``prestige home index’’ published by San Francisco-based First Republic Bank.

The Bay Area’s previous record for luxury-home values was set in the second quarter of 2001, when the average value was just under $2.4 million.

In expensive Silicon Valley communities such as Los Gatos, Saratoga and Palo Alto, ``the number of sales and the price increases are stunning, quite frankly,’’ said Katherine August-deWilde, First Republic’s chief operating officer.

San Francisco has seen even stronger growth, driven in part by demand from international buyers, she said.

In general, an improving economy and strong demand boosted prices and values throughout the state in the second quarter. Low mortgage interest rates also played a part, as more buyers decided to buy while rates were low, and the resulting competition for homes helped push prices up.

But now with more luxury homes coming on the market in summer, the trend may not last.”

Yeah, no kidding.

Wednesday, September 1 2004 at 12:07 PM

mark nottingham