Wickenburg, AZ: ,  Housing Slump, dive, burst the housing balloon, market collapse,  hard landing, all are words that move your emotions. One has to look at facts of the situation, why we invest and where are we in the economic emotional cycle.

First the Facts: *

New Home Sales are 21.6% lower in July than compared to last year. Down 4.3% in July alone. When new homes were priced at $ 200,000 on the out skirts of cities, buyers flocked to them. As pricing hit the mid $300,000 the affordability began to vanish. The result, builders have many unsold spec homes. Inventories of unsold new homes are now at a 6.5 month supply, an 11 year high. Housing starts fell 13.3% and building permits dropped 20.8% from the previous year. Toll Brothers, home builders, reported a 48% drop in orders from last year.

Existing Home Sales are down 4.1% for July to their lowest level since January 2004.  In the Northeast sales are down 5.4%, Midwest down 5.9%, West Coast down 6.4%. These represent sales that closed in July and most likely they were purchased in May and June. Therefore even slower sales in July will be reflected next month. For Wickenburg sales info see Wickenburg Real Estate hits the wall .

Average Median Home Prices nationwide are at $230,000, up .09% from last year. Basically a flat gain in value. From 2000 to 2005 the average Home increased in value by 58% This past year represents the top of the market and it only has one way to go, down.

Mortgage Rates were at a forty year low. Allowing for making housing more affordable. The Federal Reserve has raised interest rates 17 times in the last 18 months and mortgage rates have risen, thus making houses less affordable.

Why we invest:,  This sound like a simple question and part of it is. We invest to make or accumulate more wealth (money, assets ) in order to better our lives. However America has this desire to make money on the easy.  Call it the "investment fever".  Easy Street. Like the Dot Com Fever.

The Dot Com investment period made no sense from a business standpoint because why would you invest in ventures that were losing money and paid no dividends. People invested during the Dot Com period because someone else came along and brought your stock at a higher price. Someone gave up (invested) money to buy your stock. Wealth was transferred, not created. Thus it seemed like easy money. "Investment Fever" was there.  The Dot Com stock market ran out of people to keep buying the stock and driving the price higher.

Boom ! Down went the market. Investors know the last one out of an investment gets hit by the door.  The smart ones ran quick. The others lost big time.

Where are we in the Economic emotional cycle:

Investors in the stock market fled to become investors in the housing market. Easy money became the rule as the five year housing boom created an emotional " investment fever ".  Homes sold in one day because there was the believe that someone would come along tomorrow and pay you a higher price.

Surprise, actually no surprise we have run out of people that can continue to pay a higher price.  Today many sellers are in denial to the need for lower prices. Buyers are expecting deals. No matter what your asking price , buyers want a discount. When sellers denial goes, away it will be replaced by an emotional " Selling Fever".

 If you plan on living in your house you will be just fine. If you are an investor in property you should take what profits you have now before the emotional "Selling Fever" takes over and drives prices down. Smart investors are getting out now before the door hits them. Money is leaving real estate and driving up the stock market.

At some point prices will go low enough to return housing to the emotion of an investment item. Will it be a decline of 10% or more? I think it will take a least a 25% drop to stabilize the housing market

 

Casino's sucker people into make easy money. "Play and win." They don't say ,go where the losers go !  People want easy money.  Housing's easy money days are gone for now. Hang on to your hat !

 

ROBERT HIPMAN : ECONOMIST

 * Sources: National Association of Home Builders, Commerce Department, National Association of Realtors

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