Housing market now predicted to fall hard but not recede
Every week there seems to be a new report, new evidence that suggests we either are or are not going to experience a hard landing or crash in the real estate market.
As the weeks and months roll on, it is evident that the market is going to cool for longer than many economists originally anticipated. Sales have experienced record declines and prices have just begun to reflect this with one to two percent decreases.
So, now prices are expected to drop further which will result in a hard landing for the market. But is a crash or recession expected?
The article, “Soft landing' for housing 'no longer in the cards” posted on October 4, 2006 on Inman News explains how the market is expected to keep slowing but not recede.
“Historically low interest rates, an overall economy that is still pushing forward, and efforts by the nation's home builders to control their unsold inventories will keep the real estate slowdown from causing a recession, according to economists participating in a teleconference last week hosted by the National Association of Home Builders trade group.”
NAHB Chief Economist David Seiders said that he predicts an 11.5 percent decline in housing starts this year, and expects another 11.7 percent decline in 2007. Seiders continued to explain that the housing market should hit bottom during the summer of 2007.
After 2004 and 2005 produced unfathomably inflated housing starts, home price appreciation and sales increases, “we need a period of below-trend performance to work off excess inventory and improve housing affordability,” said Seiders.
The market is making its way in favor of buyers as mortgage rates are finally dropping (after 17 consecutive increases), builders and developers are offering more incentives and available housing inventories are at record highs.
“Seiders said he is assuming that rates on 30-year mortgages will average about 6.5 percent for some time, pointing out that long-term interest rates have been “performing beautifully” since mid-year. He expects the Federal Reserve to hold the federal funds rate at the current 5.25 percent into the first half of next year, and likely move it down to 5 percent by mid-2007.”
Once rates lower to the five percent mark, the housing industry may experience another surge in sales. Incomes have not yet adjusted to inflated home prices but the lower rates and slightly lower prices will provide buyers the mental edge, if not so much financially, to purchase up reduced–price properties.
“Although a soft landing is ‘no longer in the cards’ for housing, Behravesh said that type of outcome most likely awaits the U.S. economy, with the gross domestic product growing 3.4 percent for this year, 2.2 percent next year and possibly slipping below 2 percent for a few quarters ahead. He agreed with other teleconference participants that a slowdown, or even a decline, in home price appreciation will reduce the wealth effects from home equity, but the impact on consumer spending and the spillover to the rest of the economy should be relatively modest.”
There have also been reports that, indeed, consumer spending has kept pace of recent years despite higher interest rates and low affordability on housing.
The market should be quiet for the next 10 moths or so and start to gain a full head of steam by the end of 2007.
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