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August 25, 2006

Today's Housing Bubble Post - It Is Hitting the News

-- by Dave Johnson

It's becomming "the story." This has to go on for a while, for the news to filter out to "the masses." In a few weeks it will be generally understaood that housing prices are heading down. Next will be stories about how fast prices are dropping, and then about people being hurt by this. Each will feed the next phase.

Selling In Slowing Housing Market, Expert Offers Uncommon Tips To Help - CBS News

How do you know how to price your house? Fletcher says, "Look at what other similar houses in the neighborhood are selling for and then set your price at 10 percent under the market.
If you want the house to sell, price it lower than the last one that sold. This is necessary - if you want to or have to sell - but feeds the drop.

Washington Post: New-Home Numbers Add to Housing Woes

New-home sales fell more steeply in July than economists forecast, and the number of unsold houses climbed to a record, deepening a slump in an industry that fueled economic growth for five years.

New York Times: Housing Reports Reveal a Slowing Market

A backlog of unsold new homes continues to pile up. Last month there were 568,000 new homes on the market — enough that it would take 6.5 months to sell them all at the current sales rate. That is the most in more than a decade.

Business Week: Housing: The Roof Won't Collapse On The U.S. Economy,

All of this is not to downplay what is essentially a recession in housing. Housing starts sank further in July. Permits to begin new construction plunged close to a four-year low, and an industry measure of builders' sentiment sank to a 15-year low. Forward-looking indicators from declining mortgage applications to depressed attitudes of potential home buyers to moribund buyer traffic in model homes indicate more weakness to come.
Chicago: Midwest July new home sales drop 21%,
Sales of new homes dropped in July while the inventory of unsold homes climbed to a record high.
US News & World Report: New-home sales swoon,
Economists said the market for new homes may be in worse shape than the government's figures show because they don't take into account rising cancellations reported by many home builders in recent weeks. "This was probably an even weaker month than it looks," says Michael Carliner, an economist with the National Association of Home Builders.
Richmond: Home sales are cooling further

Krugman - all you need is the headline: Housing Gets Ugly, but I'll quote just a bit:

Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn't really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.

But eventually prices reached a level beyond what even optimistic potential buyers were willing to pay, especially after interest rates rose a bit. (They're still low by historical standards.) As demand fell short of supply, double-digit price increases declined into the low single digits, then went negative everywhere except in the South.

And with prices falling in many areas, the speculative demand for houses has gone into reverse, as people try to get out with a profit while they still can. There's now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.

Posted by Dave Johnson at August 25, 2006 1:43 PM

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Posted by: grannyinsanity [TypeKey Profile Page] at August 25, 2006 9:02 PM

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