New home sales plunge in November by biggest amount in nearly 12 years

[BeatleBoot]

http://freep.com/apps/pbcs.dll/article?AID=/20051223/NEWS11/51223001

Breaking news

New home sales plunge in November by biggest amount in nearly 12 years
December 23, 2005

WASHINGTON (AP) — Sales of new homes plunged in November by the largest amount in nearly 12 years, providing the most dramatic evidence yet that the red hot housing market over the last five years is starting to cool down.

The Commerce Department reported Friday that new single-family homes were sold at a seasonally adjusted annual rate of 1.245 million units last month, a drop of 11.3 percent from October, when sales had surged to an all-time high.

Last month’s decline was even bigger than the 8.7 percent drop-off that Wall Street analysts had been expecting. While sales of both new and existing homes are still on track to set records for a fifth straight year in 2005, analysts are forecasting sales will decline in 2006 as the housing boom quiets down.

Analysts are looking for home sales to dip by around 6 percent next year under the impact of rising mortgage rates. Analysts believe that house prices, which had been soaring at double digit rates, will moderate as well.

Some of that price moderation was evidenced in the November report, which showed that the median price of a new home sold was $225,200 last month. That was up just 0.3 percent from November 2004, the weakest year-over-year price change in two years. The November median price was down 4.1 percent from the October median sales price of $234,800.

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[PDJane]

1. Sigh........

and there goes the bubble..........

[SpiralHawk]

2. Bubble burst by Republican incompetence and greed

as usual

That's what you get with the NeoCON culture of corruption.

[MrModerate]

3. Really don't think this is a bubble bursting . . .

In the sense that we'll see home values dropping 10, 20, 50 (or more, gulp!) percent. I think the price rises will moderate now. The circumstances are too similar to other times when home prices stopped accelerating insanely.

If the economy shudders and those people with interest-only mortgages start losing their jobs and seeing their home prices decline so they're underwater, then we can talk about bursting bubbles.

[spinbaby]

6. I think you'll see localized bubbles bursting

In certain overvalued parts of the country, you will indeed see home values declining. I lived in an area where it happened in the late 80s and certainly see it happening again.

[MercutioATC]

8. Agreed. I think it'll happen, but it will be localized.

Certain overpriced markets will take a hit, but most property will just see a slowing in the rate of appreciation.

[reprobate]

12. The problem as I see it is all the speculators in the market now.

As sales slow and profit moderates, the speculators will take that as a sign to turn their investments into cash. I believe that will result in many more properties hitting the market in a short time, and that HAS to create a sell off, leading to falling prices.

At least that's the way I see it.

[kineneb]

15. just as in market crash of 1929

speculators were what drove the market into the crash...food for thought...history repeating itself in new and unique ways...

[David Zephyr]

13. Yes, and this is "new" housing, not existing home sales. Big difference.

Thanks for your comments.

It's like there are actually people here who want a housing crash. Pretty sick.

[ny_liberal]

20. maybe they built less - hard to find open lots in NY area

just my 2 cents

[Jed Dilligan]

27. Pretty sick?

We're called renters. And we're sick of paying too much for too little.

[BlueStateBlue]

28. Sick? The prices of housing on the coasts is what's sick! n/t

[Voltaire99]

38. Who doesn't want the market to crash?

When home prices are so inflated that the vast majority of new buyers can't afford them, then, yes, that market has to crash.

It's like there are actually people here who want a housing crash. Pretty sick.

LOL! Go tell it to the freepers, Mr. Profit.

[cliss]

16. That's a more likely scenario.

I think the concept of a bubble doesn't cover the magnitude of suffering, the destroyed marriages, the panic and bailouts that come with it. When people say real estate bubble it brings up the idea of a soap bubble, fun and charming, floating away. Kids chase after it and laugh.

Anyway, I believe the economy will start to go down, starting in 2006. I think you're right: people will be overwhelmed with their high mortgages. Someone wrote that almost 30% of all mortgages written today are interest-only loans = disaster.

[Supersedeas]

39. how is the bubble tied to interest only mortgages?

[Ezlivin]

4. Record breaking year for foreclosures in NE Tarrant County

Tarrant County is the most conservative county in the state of Texas, too.

They are still throwing up McMansions at a breakneck pace, though.

[Bush_Eats_Beef]

5. The thread I posted yesterday is a nice companion piece to this:

Bush's "Strong" economy: Housing affordability has hit a 14-year low

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=2329831&mesg_id=2329831

[Roland99]

10. The two certainly do go hand-in-hand.

Too bad the only hands being fed are uber-wealthy and politicians' campaign funds.

[HereSince1628]

7. I wonder how much fear of the fall out from Katrina was involved?

And how much damage to the gulf coast was directly involved?

A new home purchase or new construction is generally anticipated several months ahead. The uncertainties that came out of the September hurricanes could certainly have made people a bit more cautious.

I think the housing bubble will be resolved much like the stock market bubble...basically entering into a long period of price stagnation until the true inherent value catches up with the market prices.

Granted this is gonna be a problem for those who got into speculative interest only mortgaging which is based on steady growth toward resale or remortgaging.

[pitohui]

26. katrina impact -- real estate is finally worth something here!

there was never any housing bubble in south louisiana -- until katrina

the massive destruction of housing units suddenly means that the price of undamaged or unflooded, wind damage only homes is thru the roof

the effect of katrina is completely counter to what is being reported in the media outside louisiana & mississippi

here they just announced unemployment rate of 17 percent -- 17 percent, near great depression levels -- but habitable, unflooded housing and replacement possessions are selling at record prices and at a record rate

sale tax receipts in city of mandeville, up 48 percent for the months of aug, sep, oct over those months in 2004, now think abt that, sales up 48 percent even tho the town was closed to business for most of september! in some towns the increase is even greater such as covington where the lights were turned on much sooner

having a hurricane destroy home & contents is good for gross nat'l product, because people have no choice but to buy new, we can't even keep building materials on the shelves, hell, we can't keep eggnog on the shelves, it's crazy

i'm sorry the bubble is bursting elsewhere if it is, but we never had a bubble, and it's actually a small silver lining that people can finally get a reasonable increase in the value of their home after holding it for a few years

[HereSince1628]

32. But everywhere else it has raised energy cost from 40-60%

Back in September, when people were thinking about houses they might move into from November to January the hurricanes I know it created uncertainty among the contractors here in SE Wisconsin no one was sure about the availability and costs of building materials 2-4 months out.

[pitohui]

37. needs to be controls on oil/gas prices

there is no shortage of oil or gas, in the quarter following katrina, exxon mobil posted the largest profit of any quarter of any business of any industry in human history

i conclude there needs to be caps on profits or other strong measures taken to punish and prevent price-gouging

oil should be fairly priced but it should not be extortionately priced & a catastrophe should not be used as justification to cheat people

we are still having trouble getting sufficient materials for rebuilding in louisiana also, in fact, tho i have now received my insurance and FEMA funds, i have not been able to start work for lack of materials & labor, and of course many have not yet received their settlements, when they do, those people will also be competition for the limited supply of housing or repair materials

it is a pickle, no doubt abt it

but in my area, the price of housing was already on the floor, don't see it going anywhere but up

[LibDemAlways]

9. There are no more new homes

being built in my area under a million dollars, so naturally there aren't many takers. Existing home prices have skyrocketed beyond all reason. "Starter" homes here (Eastern Ventura County, CA) are 780 sq. foot one bedroom condos that are 15 years old and selling for $325,000. Single-family homes - even 30 year old fixers - are $700,000. No wonder home sales are tanking.

[SW FL Dem]

19. WIsh I still had my 3800 sq ft home in Moorpark

We sold in 2001 and the area has gone nuts since then. Our old house would be well over a million by now. I don't know who is buying these homes. How can a family making 100K a year afford a million dollar home.

[BlueStateBlue]

30. Same way a family making $50K can afford a $400K home

With an "exotic" mortgage. I'll take the zero...

[BlueStateBlue]

29. At least your property taxes are relatively low

Try tacking 6 to 7K onto the starter price of $400K, which is the situation in northern NJ. Yikes!

[Gormy Cuss]

34. Brand new 400K house in CA would have taxes at 5 to 6K on average

Cheaper than NJ, but not that cheap. In most jurisdictions there are local bonds and parcel taxes that raise the 1% state rate to 1.25 to 1.5 % of purchase price (that $12.50 to $15.00 per thousand for those of you who compute it that way.)It's one of the reasons jumping into homeownership here is hard.

It becomes a bargain only after you stay in it a few years because Prop. 13 caps the increased valuation at 2% per annum until it's sold, with some exceptions.

[LibDemAlways]

36. Absolutely right. The only real winners under

Prop. 13 are those who bought cheap years ago and have stayed put. Still, even they see a small increase each year, and local municipalities are always adding fees and surcharges. Prop. 13 ,though, is the reason we're still in our too-small house after thirty years. Even if we wanted to cash in our equity and buy a bigger place, we could never afford the property taxes.
I suspect many people are in the same boat.

[Yavin4]

11. Home Prices Reflect Interest Rate Policies Not The Ability To Pay

The value of homes are directly tied to the interest rate policies of the Fed. They're not based on the buyer's ability to pay, rather, they're based on the buyer's ability to borrow. Low interest rates mean that the buyer's borrowing power has increased which makes housing prices. High interest rates lowers the buyer's borrowing power, so home prices fall.

The economic-political-social implications is that the days of earning your way into home-ownership are over. Home buying has become a monopoly game of borrowing and buying, and this game is off-limits to people who depend on wages to live. Another implication is that as debt gets more expensive, home values will drop dramatically, taking away value from all homeowners.

[David Zephyr]

14. Yes.

The interest rate increases is what has slowed down new home sales.

I agree with much of what you wrote, Yavin4. I do think that there will be a turn down in over-built/speculated metros like Atlanta and Dallas, but on the Coasts where there is little to no "new" home construction and where demand is still very, very high, that there will be at most a leveling off. In the 6 counties of Southern California (LA, San Diego, Orange, Riverside, San Bernardino and Ventura), November 2004 to November 2005 average home sale prices still increased 15.4%!

It's not a rosy scenario for would-be first time homeowners and for future generations. The U.S. is now entering a situation much like what exists in Japan now.

With 40 and now 50 year mortgages being offered, it will slowly become accepted that it might take two generations for a family to own their home.

I don't see a "bubble" in the classic sense on the Coasts, but I do see speculation and greed among builders in the South and Midwest which could lead to some dramatic price reductions there. Too much supply which is not the case on the Coasts.

[Yavin4]

21. In Real Estate, Location Is Everything

You're 100% correct that property on the coasts and in major urban centers like Chicago probably won't see a huge reduction, but these over-built sun belt communities will be the hardest hit. Florida will probably see the steepest decline.

[Selteri]

17. The bubble hasn't quite popped yet, but it is very close.

Housing is becomming a dream of only the wealthy very quickly, the job market income has not equalized with housing either. The Middle class is shrinking.

It hasn't burst yet, I think November is a pre-shudder that hails to the economy that if things don't improve to support it then it will shatter.

[Phoebe Loosinhouse]

25. Factors that weigh on the bubble side

1. Affordability - wages have been stagnant while real estate values soared - unsustainable

2. Interest rate increases always, as in always, cause a drop in value due to the decrease in the population in the buyer pool. Many people who want to buy big houses have to sell small houses first in order to do so. When the little fish die off, the larger fish have nothing to eat.

3. Over building in the McMansion sector- relates to #2

4. Huge influx of novice, undercapitalized investors who have no idea what they are doing and are sucking up negative cash flow because they believe appreciation will pull them out. If appreciation stalls, they will get scared and dump a lot of inventory.

5. Job losses

6. Rise in utility costs. McMansions will not be as attractive - they will become the housing equivalent of Hummers.

These are some of the major factors as I see them.

[adigal]

18. Didn't you hear Bush today?

The Americans had a good year this year!

Hahahahahaha!!!!!!!!!

[spinbaby]

22. He said that?

The bubble is bigger than I thought.

[adigal]

31. Here it is!!

http://news.yahoo.com/s/afp/20051222/pl_afp/usbushiraqterrorism_051222201244

[niallmac]

23. I suck at economics just like I did in school.

While I do not wish that the major investment Americans make will depreciate I really do not get where the money is coming from for these expensive homes.
This country is not creating new industry as far as I can tell. We are shipping our manufacturing sector overseas so fast we have to widen the Panama Canal so fatter boatloads of crap can be shipped here. Detroit is melting. It seems like every other person I know has a job related to the 'booming' housing market. If I were a magic eight ball I would answer
"Outlook Cloudy" regarding the direction of this economy. I know. I still get a Cminus.

[imported_dem]

24. Now that the new DOE rules are in effect for 13 SEER air conditioning

The additional 2000-3000 dollars for the price of the house will bwe making another large impact on new home sales.

[classics]

33. Thanks to the new Bankruptcy bill no doubt.

People are becoming risk averse now that they know the debtors prison waits for them if they cant pay off the mortgage.

Sad but true, but buying a home, even to live in, is a major risk for nearly all Americans.

[GoddessOfGuinness]

35. What we need is another tax cut for rich people

so they can afford to buy even more homes.