Home Prices Seen Dropping Through 2007
By JUNE FLETCHER
October 26, 2006
Average home prices are headed down over the next few quarters, according several leading housing economists, and growth isn't expected to resume until at least 2008.
The predictions were made on Wednesday at the National Association of Home Builders 2006 Fall Construction Forecast Conference, held in Washington. Builders, lenders, product manufacturers and others attend the semiannual conference to learn about economic trends in residential home building.
The forecast comes as other bodies have released dour news about the housing market. Median single-family home prices are already falling. The U.S. Commerce Department reported today that the median price of new homes fell to $217,100 from $240,400 a year earlier, the lowest price in two years and biggest year-over-year drop since December 1970.
That follows a report on Wednesday by the National Association of Realtors that showed the median price of previously owned homes fell 2.2% to $220,000 during the month, a record drop. Meanwhile, the Federal Reserve decided not to change the federal funds rate, the interest rate on overnight loans between banks, from 5.25%, citing the "cooling" housing sector. Although purchase loans are only indirectly affected by this rate, it does have a direct bearing on home equity lines of credit.
At the forecast conference, David Seiders, chief economist of the National Association of Home Builders, predicted that average prices of single-family homes -- up 10.1% in the second quarter from a year earlier -- will stall in the second quarter of 2007, and then drop 1% in the third quarter and 0.5% in the fourth quarter, before recovering slightly in 2008. It is the first time that the trade association has ever predicted a price decline. Mr. Seiders pegged his forecast to quarterly changes he expects will occur in the Office of Federal Housing Enterprise Oversight's Housing Price Index, which has never showed a year-to-year decline in home prices.
Mr. Seiders blamed a confluence of factors for the anticipated decline, including overbuilding, lack of affordability and rising inventories of unsold new and resale homes. The imbalance between supply and demand, as buyers continue to sit on the sidelines waiting for prices to drop, has already had a big impact on builders. In the second quarter of 2006, the annual rate of single-family starts fell 41% to 1.53 million, while "permits are in free-fall," Mr. Seiders said. Although he anticipated a correction at the last semiannual meeting of the forecast conference, "it happened a lot sooner than I expected," he said.
Other economists at the semiannual conference were more pessimistic. David Berson, chief economist at Fannie Mae, said that average home prices could fall 2% to 3% by the middle of next year and not rise until 2009. "Prices have gone out of whack with income growth," he said.
Mark Zandi, chief economist of Moody's Economy.com, expects prices will fall between 2% and 4% by the middle of next year, once sellers finally accept that the boom is over. Still, he doesn't believe that a housing crash is imminent. "Corrections devolve into crashes when bankers dump properties," he said. According to Mr. Zandi, that scenario is less likely to happen today than it was in the '80s and '90s, since most homeowners have a sizable amount of equity in their homes and are unlikely to default on their loans.
By JUNE FLETCHER
October 26, 2006
Average home prices are headed down over the next few quarters, according several leading housing economists, and growth isn't expected to resume until at least 2008.
The predictions were made on Wednesday at the National Association of Home Builders 2006 Fall Construction Forecast Conference, held in Washington. Builders, lenders, product manufacturers and others attend the semiannual conference to learn about economic trends in residential home building.
The forecast comes as other bodies have released dour news about the housing market. Median single-family home prices are already falling. The U.S. Commerce Department reported today that the median price of new homes fell to $217,100 from $240,400 a year earlier, the lowest price in two years and biggest year-over-year drop since December 1970.
That follows a report on Wednesday by the National Association of Realtors that showed the median price of previously owned homes fell 2.2% to $220,000 during the month, a record drop. Meanwhile, the Federal Reserve decided not to change the federal funds rate, the interest rate on overnight loans between banks, from 5.25%, citing the "cooling" housing sector. Although purchase loans are only indirectly affected by this rate, it does have a direct bearing on home equity lines of credit.
At the forecast conference, David Seiders, chief economist of the National Association of Home Builders, predicted that average prices of single-family homes -- up 10.1% in the second quarter from a year earlier -- will stall in the second quarter of 2007, and then drop 1% in the third quarter and 0.5% in the fourth quarter, before recovering slightly in 2008. It is the first time that the trade association has ever predicted a price decline. Mr. Seiders pegged his forecast to quarterly changes he expects will occur in the Office of Federal Housing Enterprise Oversight's Housing Price Index, which has never showed a year-to-year decline in home prices.
Mr. Seiders blamed a confluence of factors for the anticipated decline, including overbuilding, lack of affordability and rising inventories of unsold new and resale homes. The imbalance between supply and demand, as buyers continue to sit on the sidelines waiting for prices to drop, has already had a big impact on builders. In the second quarter of 2006, the annual rate of single-family starts fell 41% to 1.53 million, while "permits are in free-fall," Mr. Seiders said. Although he anticipated a correction at the last semiannual meeting of the forecast conference, "it happened a lot sooner than I expected," he said.
Other economists at the semiannual conference were more pessimistic. David Berson, chief economist at Fannie Mae, said that average home prices could fall 2% to 3% by the middle of next year and not rise until 2009. "Prices have gone out of whack with income growth," he said.
Mark Zandi, chief economist of Moody's Economy.com, expects prices will fall between 2% and 4% by the middle of next year, once sellers finally accept that the boom is over. Still, he doesn't believe that a housing crash is imminent. "Corrections devolve into crashes when bankers dump properties," he said. According to Mr. Zandi, that scenario is less likely to happen today than it was in the '80s and '90s, since most homeowners have a sizable amount of equity in their homes and are unlikely to default on their loans.
No comments:
Post a Comment