A Housing Market Debate: A Robust Future? Or an Everlasting Bubble?
What is the future of the housing market? Will home mortgage activity return to the pace it stood at just a couple years ago? A pair of experts debate the issue …
Pro: A Reawakening Market by Maya Roney
The NAR has been accused of denying the bubble to protect its members and their 6% commission, but the bullish attitude isn’t completely unsubstantiated. Sales of existing homes remained roughly flat from September, 2006, to year-end; from February to September, they declined 10%.
Total existing-home sales for 2006 reached 6.48 million, 8.4% lower than 2005 sales, but still the third-highest total on record after 2005 and 2004. Speculation drove sales up so much in the first half of the decade that healthy home loan activity in 2006 was considered troubling.
“The sky never did actually fall in 2006 - or, to use that phrase that the media love, there were no ‘bubbles bursting,’” wrote NAR Chief Economist David Lereah in a January commentary. “But air did come out of some inflated balloons.”
In another recent display of relative strength, the NAR’s Pending Home Index, based on contracts for sales of existing homes signed in December, 2006, rose 4.9% that month, to 112.4, from an upwardly revised level of 107.2 in November. The monthly gain was the biggest since March, 2004.
The NAR expects to see existing-home sales of 6.44 million by the end of 2007, and 6.64 million in 2008. The national median home price should grow 1.9%, to $226,200, in 2007 after rising 1.1% in 2006.
Realtors aren’t the only ones optimistic about the housing market.
The National Association of Home Builders is also predicting stabilization in 2007. Housing starts jumped 6.7% in November and 4.5% in December, according to the Census Bureau. NAHB Head of Research Gopal Ahluwalia has said starts will continue to pick up this year, backed by strong economic indicators like low interest rates and energy prices, and a high employment rate.
Has the market hit rock bottom? That may be stretching it - tops and bottoms can be identified only in retrospect. But the worst may be over. At the very least, the housing “bust” hasn’t been as devastating as many predicted.
Con: A Bounceback Will Be Glacial—If It Happens by Peter Coy
[Real estate] watchers keep wanting to call a bottom to the housing market’s decline. On Feb. 15 they pointed to a report showing improvement in the sentiment of homebuilders.
The National Association of Realtors said prices fell in the fourth quarter in about half of the nation’s metro areas, but the Realtors’ ever-optimistic chief economist, David Lereah, said he suspects “the fourth quarter was the bottom of this current business cycle.”
But then along came more evidence that housing is still suffering its own localized recession. On Feb. 16 the Census Bureau announced that construction starts on privately owned homes fell 14% in January, below even the lowest expectations. The annualized rate of construction was back to 1997 levels.
Eventually, the decline in construction will help dry up the inventory of unsold homes. But consider this: The number of empty houses for sale is at an all-time high. And mortgage loan providers are starting to tighten lending standards, especially in the subprime market.
That will force many marginal buyers out of the market. Some current owners who have to refinance home loans could end up pushed into distress sales. Weakness in subprime is likely to filter through to the rest of the market.
“I believe the most apt description for the current trend is ’suspended animation,’” wrote Liz Ann Sonders, chief investment strategist of Charles Schwab & Co., on Feb. 15.
SOURCE: Business Week