Now what? Until recently most business economists were predicting a “soft landing” for housing. Even now, the majority opinion seems to be that we’re looking at a cooling market, not a bust. But this complacency looks increasingly like denial, as hard data — which tend, for technical reasons, to lag what’s actually going on in the market — start to confirm anecdotal evidence that it is, indeed, a bust.
I still don't agree with the hard landing premise. We currently have 6.5 months of inventory...around 6 months is considered normal. Previously, I think inventory was down to 3-4 months.....that's why prices were jumping up quickly. As much as Toll is complaining, homebuilders are much more savvy than in the past......they have cut inventory quickly in the past few months......so supply is not growing like it was in the Spring. However, existing housing inventory is still moving up. Even here in Seattle, inventory is growing athough prices continue to be up double digits in percentage terms. Even in some of the most overbuilt markets like LA, Phoenix and Las Vegas, prices continue to go up albeit more slowly. And remember that Toll and other homebuilders are still projecting profits going into 2007 and 2008.
The biggest concern right now is that the slowdown in the housing boom will mean a big drop in housing related jobs and that that might throw the country into recession. Right now, the inverted bond yield is saying there is a 30% chance of recession next year.....up from ten percent just last month.
2006 will be the transition year. If we can get through it without a recession, I think we will be okay. |
