Baum: Stagnant housing sector needs drastic action … such as lowered prices
Posted by: admin in Real Estate and HousingBaum: Stagnant housing sector needs drastic action … such as lowered prices
Filed under: Forecasts, Economic data, Housing, Recession
The almost always-on-the-mark Bloomberg News columnist Caroline Baum reminds investors/traders — and potential home buyers — that one should not jump into summer by jumping into a home purchase (if you can avoid it).
Baum notes that one has to view April’s 6.3% increase in existing home sales in the proper context: housing has been down so much and for so long that each incremental pop up looks like a housing sector recovery. It isn’t.
New and existing home sales peaked in July 2005 and September 2005, respectively, but housing starts didn’t until January 2006. The result? A large inventory build.
A record housing recession
Single-family starts are down 63% from their January 2006 peak, easily ‘topping’ peak-to-trough declines of 38% in 1973-75, and 57% in 1984-1991, and approaching the 65% slide in the housing recession of 1977-1981, Baum states.
Further, homebuilders are lobbying Congress for a tax credit for first-time homebuyers, Baum added, but are hesitant to do the one thing that has historically sparked buyer demand in a hurry: lower prices. Builders are hesitant to lower prices for fear that they’ll alienate previous customers and encourage current buyers to seek to renegotiate contracts, Baum stated. But ultimately, that’s what’s need to get home sales headed in the right direction.
Housing Analysis: Baum’s point about the need for builders to lower prices of new homes is valid. Even so, the inventory of new and existing homes is so huge, (a 10-11 month supply at current sales rates), that more action is needed, including a federal tax credit for first-time homebuyers, a credit that should be double for any member of the U.S. Armed Forces serving, or who has served, in the Iraq War. The tax credit, combined with the new, higher Office of Federal Housing Enterprise Oversight conforming loan ceiling, $729,750 or 125% of the average home price in a metropolitan area) won’t, in and of themselves, create a housing boom, but they will get the housing ball rolling in the right direction.
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