Real Estate Market Update
Yesterday the National Association of Realtors announced that 2007 will be the first home price decrease since the Great Depression. They revised down their estimate from a 1.9% increase to a 0.7% decrease in the national median price. The NAR is well known for putting out, how shall I say it, "optimistic" analysis. Downard revisions by industry organizations in and and of themselves are relatively common, but when the ever cheery NAR revises down, the actual number will in all likelihood be much, much worse. Some economists are calling for a 6%+ decline.
What we have here is the perfect storm:
- Tighter lending standards have eliminated 15-30% of prospective home buyers from the housing market.
- As we enter the first big wave of recasting mortgages many "motivated refinancers" will be unable to refinance and will quickly transition into "motivated sellers."
- In the conventional wisdom it is the motivated sellers that ultimately lead to price declines. A useful figure to track is the percentage of home sales per notice of default. In other words it is the percentage of sellers who are "motivated" by being unable to afford their own home. See the graph below for the San Diego area courtesy of Piggington (hint: this is not a good sign for the housing market):
No comments:
Post a Comment