This is a good idea, but how the heck does one play it? If you have a house and you think we're in a housing bubble and you might lose 70 thousand to a 150 thousand over the next year.. where do you live if you sell now? Sell a stock you've got cash, sell a home you've got a parking lot.
"Trying to Beat the House (of Cards)
By Rick Pendergraft (rpendergraft@sir-inc.com)
8/26/2002 2:41 PM ET
"New home sales set another record in July." This could be the headline for a number of articles written today, but it's not exactly telling the whole story. After announcing in June that new home sales eclipsed one million units for the first time ever, the government lowered the figure to 953,000. Now July becomes the first month to reach seven figures (until next month's revision, that is).
The market's initial reaction was one of skepticism. Apparently, those on the floor didn't trust the accuracy of the government's report. Can we make the bureaucrats in Washington sign-off on the accuracy and truthfulness of their economic reports? All of these revisions are ridiculous. Recently, there seems to be a bias toward the downside when restating the numbers. The initial report heralds better-than-expected results, only to have a follow-up months later that would've been in line with (or below) expectations. Sorry … I digress. Back to the housing report.
Regardless of whether or not the month of July provided a record number of new housing starts, I can't help but believe the housing bubble is about to burst the same way the Internet bubble did. The economy is weak, yet the number of new homes being built continues to climb. If employment continues to weaken, how are these homes going to be paid for? And what are we going to do with the existing homes out there? I realize that existing home sales have been rising almost as rapidly as new home sales, but it seems that supply is going to outpace demand. Going back to basic economics: prices fall when supply is greater than demand. Falling prices on a home that's mortgaged at 95 percent of its value is a scary proposition … not only for the individual, but also for the lending institution.
My wife and others have accused me of being too pessimistic. I can't help it if I look at things a little different from the majority. While reading one report about the housing numbers, I came across a statement that said some analysts were concerned about a bubble while others were not. One of the reasons the "concerned" crowd cited was that demand was being driven by demographic factors, such as immigration. How is that good? Whether they're referring to immigration from one region of the United States to another or immigration into this country is irrelevant. If it's the former, then shuffling people from region to region isn't going to create more demand. If it's the latter, then adding more workers to an already flooded labor pool isn't going to help the economy.
Here's one last note of concern from the housing report. The average price for a new home fell from $220,300 in June to $215,200 in July. The median price fell from $186,200 to $170,500 during the same time period. Using the government's original median price data for July, sales for the month amounted to $173.4 billion. If you take the revised number and median price data for June, the total comes to $177.45 billion. In other words, the number of new units might be up, but the amount spent on these new homes isn't. |
