It is no joke that the housing market is in despair, residential being the primary focus. States like Michigan where I live and Nevada have seen the bowels of hell (to put it lightly) for the majority of 2007.
The reports of, "new lows" this and, "recession fears" continue to scour across the headlines of the big names in financial news.
The latest is as such:
New-home sales tumbled 9 percent in November from October to a seasonally adjusted annual sales pace of 647,000, the Commerce Department reported Friday. That was the worst sales pace since April 1995.
"It was ugly," declared Richard Yamarone, economist at Argus Research. "It is the one sector of the economy that doesn't show any signs of life. It doesn't look like there is any resuscitation in store for housing over the next year," he said.
Because of the subprime crisis lenders have become far more strict on what it takes to get a loan. It hasn't been proven that this is a big exclamation point on the problem of falling sales, but it will be interesting to track into 2008.
Adding to this fact:
Would-be home buyers have found it more difficult to secure financing, especially for "jumbo" mortgages -- those exceeding $417,000. The tighter credit situation is deepening the housing slump. Unsold homes have piled up, which will force builders to cut back even more on construction and look for ways to sweeten the pot to lure prospective buyers.
"A lot of borrowers are being disqualified for loans. If you can't qualify for a mortgage the game is over. For those who do qualify, it takes longer to get loans," said Brian Bethune, economist at Global Insight.
You heard the man, game over.
SOURCE:
Home Sales Plunge, Feed Recession Fears
Jeannine Aversa
Yahoo Finance
http://biz.yahoo.com/ap/071228/economy.html
The only statement I might take issue with, is something within the quoted statement where it stated: "If you can’t qualify for a mortgage the game is over".
I mean honestly, is financial wealth tied to having your own home? I think that sort of thinking is what led us to this mess. Heck, if I can rent from now until the end of time (albeit, they are nicer than your average rental home) - I'm more than content. As long as the home is nice, spacious, and affords me the standard of living I desire - then what is wrong with renting a nice house on a standard lot?
People in the 1990's equated financial prosperity to owning a home. Which simply isn't true. But they could get a home, and in their mind - they were prosperous. Which led us to the current mess.
Just a further thought on that aspect. Wife and I were just talking about this topic, and she brought up a personal friend of ours. He was a small business owner here in my town. Sold it. But he has the same outlook as we do. Guy's net worth is in the millions, has about 15 rental properties here in Monroe, but doesn't own his home. He rents. Now mind you, it's a 250k rental home, but it's a rental nonetheless. It offers a tremendous amount of freedom. Why do people insist that having your own home is the only way to financial prosperity? That thinking made them leap before they looked' in the 90's.
Hey Airelon;
I'm right behind you on this one. I think the reason that housing is so misunderstood is two-fold. It's kind of mash between bad human math and some pervasive but incorrect sales logic (not far off the myth of the value of diamonds).
"Property values will definitely go up, it's not like we're making any more land"
"A home is great investment, renting is just throwing your money away"
We've all heard the sales pitch and tons of people have bought into it. Of course it helps that the last like 15 years have been great for real estate, b/c no one likes to attribute their own success to simple luck.
The other aspect here is that people are simply bad at the type of holistic long-term math that is required to correctly evaluate the value of a house. Property has the capacity to appreciate in value, but it also has a ton of downward forces: property taxes, maintenance costs, large overhead for sales costs (and low liquidity when you need it). The low liquidity can cost you even more money by "locking in" your location, so there's definitely a "mobility cost". Plus inflation tends to cramp the numbers even more.
And the truth is, people are simply bad at calculating all of these numbers, even on a small scale. Heck, look at cars. How many people complain about the cost of new tires and general repairs or engine problems? Why? Didn't they know the car was going to need new tires eventually? I don't trust people to know the outstanding maintenance costs required on their home (just to keep it from depreciating), b/c I don't even trust them to know these numbers for their cars.
Hey, if you bought your place in 2000 for 100k and sold it today for 112k, how much money did you make? It's only seven years right? Average person says "Hey, I made 12%", the 3% of the population that actually understand that the person lost money (between opportunity costs and inflation) don't seem to be connecting with the other 97%.
And really, who calculates "mobility cost"? Tons of people never plan on changing zip codes.
The illusion of home ownership as prosperity will continue to remain prevalent as long as people are bad at math and banks are making great money handing out mortgages (last couple of years aside). But hey, somebody has to be paying the interest on my investments