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Wednesday, August 29, 2007

Housing Statistics - July 2007: Only More So...

08/29/07

All of the various national housing statistics are out now. They are released at various times and collected here each month. Not much good news for sellers, it's the same old song, but with the bad mortgage news, only more so.

The Quick Summary
Production keeps falling, yet inventories do nothing but rise. In terms of the law of supply and demand, this can only mean one thing; no buyers.

If buyers were essentially out of the market in the past several months, then this continued downward pressure on prices and the new news about lending will certainly provide them with good reason to remain on the sidelines.

On The Supply Side
Rising Inventories: This key measure of the market rose yet again and currently stands at 4.592 million units which represents a supply of 9.6 months. This is more than 200% in excess of calendar years 2004 and 2005. There is wide opinion that a 6 months supply represents some kind of normalcy, so the market is something like 60% above that.

Declining Permits, Starts, and Completions: The most recent data, (PDF File): Production continues its drastic cutbacks, obviously without the desired effect of reducing inventory.

July Permits: 1.373 million annual rate, 2.8% below June 2007, and 22.6% below July 2006.
July Starts: 1.381 million, 6% below June and 20.9% below July 2006.
July Completions: 1.512 million 0.1% below June and 22.2% below July 2006.

Huh?
We are not economists, but intuitively one must ask, is there any economic segment that ever cut production by 20% and still had rising inventories for this long?

As context, The Wall Street Journal noted:
Home builders slowed groundbreakings during July, pulling construction to its lowest rate in 10 years as sales keep tumbling and credit tightens...

Business Week, checked in with an article entitled, "Bonfire of the Builders", and stated:
Sheer overbuilding, a symptom of every housing bubble, is the most obvious explanation for the new ghost towns sprinkled around the country.

David Berson, Economist at Fannie Mae:
The S&P 500 Homebuilding Index has fallen by almost 20 percent since the end of June, and lenders that accounted for roughly 40 percent of subprime orginations in 2006 have gone out of business, been sold or are in the process of being sold, or have filed for bankruptcy protection. (Emphasis added as it segues into demand):
No Surprises On The Demand Side:
Mortgage applications have declined in most of the last five weeks. The report for today, August 29, includes applications for new purchases, refinance, and current rates.

New Residential Sales Still Down: The annual rate of 870,000 units is a slight rise from the June estimate of 846,000. By contrast, the rates for 2005 and 2006 came in at 1.283 million and, 1.051 million respectively. For those who favor percentages, this represents a decline of 32% from 2005, and 17% from 2006.

Existing Home Sales Down: At 5.750 million units, June, 2007 is the lowest report in the last 12 months. For 2004, the average was 6.778 million, for 2005, 7.076 million, and for 2006, 6.478 million. We are running roughly 15% below the last three calendar years.

MSNBC's article on existing home sales for the quarter, reports the biggest drop in 16 years, while Money CNN checked in as well.

Is There a Forecast?
As one commenter who escapes our memory cogently noted, the July data on housing precedes the mortgage and foreclosure fiascoes of August, so it is logical to believe that things will get worse before they get better.

From Realty Trac - Foreclosures 93% Over 2006: This data was widely reported in the mainstream media as adding homes to existing inventories and tightening credit. More foreclosure analysis from Money CNN.

How much will future resets from ARM's, (adjustable rate mortgages), resulting in even more foreclosures impact us? The chart at the right shows the dollar value in billions of ARM resets.

It comes originally from Seeking Alpha.com, and as frequent television guest Jonathan Miller from Matrix stated: "Next March is going to get interesting..."

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1 Comments:

Blogger JadeEJF said...

I agree with BusinessWeek that a great deal of this comes from overbuilding- in fact, I think NuWire Investor just highlighted the top 5 most overbuilt markets in the country... and I think their housing markets did a lot to pull the rest of the country down with them :/ Hope things get better sooner rather than later.

3:27 PM  

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