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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: JoanP who wrote (714)	9/1/2001 8:07:26 PM
From: Tradelite	Read Replies (3) \| Respond to of 306849

from dismal.com ______________ Housing Is Still On a Sturdy Foundation By Celia Chen 08/24/01 8:00 AM ET Quickly rising house prices have some observers worried that housing markets are at risk of melting down. However, an examination of the drivers behind housing's recent strength reveals that rising house prices, in most markets, are supported by sound fundamentals. It's not too much of a stretch to pick housing as the most likely candidate to be the next bubble to burst. After all, housing is one of the only facets of the economy that is not deflated at this time. In fact, demand for homes is still quite high: sales of new and existing homes in the second quarter are up nearly 5% year over year to 6.21 million units, a pace that is second only to the first quarter. Moreover, house prices are appreciating at an accelerating rate. The National Association of Realtors reports a 6.4% increase in the median existing house price in the second quarter compared to a 4.4% rise in the first quarter. This acceleration in price growth has occurred even as the economic malaise that hit at the end of last year has steadily deepened. House prices that are rising at nearly twice the pace of inflation appear to be incongruous with an economy on the brink of recession. The housing market's strength and the sturdy pace of price appreciation, however, are grounded in some solid fundamentals. On the supply side, inventories remain near a record low, with less than four months worth of new and existing homes available for sale. Builders have remained fairly conservative about building. In the last four quarters, builders have completed an annualized 1.20 million single-family homes, compared to the 1.28 million pace hit in the same period that ended in the second quarter of 2000 and the 1.23 million in the second quarter of 1999. Home sales during these previous periods were actually slower than what is currently being experienced. Affordability is the key on the demand side. Despite strong house price appreciation and slowing income growth, single-family homes remain very affordable in a historical context. Low mortgage interest rates are more than offsetting the negative impacts of these other factors affecting affordability. The rate on a 30-year fixed mortgage picked up a bit in the second quarter, but remains near a historic low of below 7%. Moreover, even as fixed rates ceased their rapid descent, the rate on an ARM dropped sharply, thanks to the interest rate cuts implemented by the Federal Reserve. Thus, the housing affordability index as measured by Economy.com currently reads 121, which is well above its 20-year average of 105. This means that a family with a median income could afford to purchase a home that cost 21% in excess of the median priced home. Affordability, combined with the fact that the jobless rate is still fairly low and that consumer confidence is stabilizing, are key ingredients to sustaining demand. Finally, longer-term trends also look solid. In theory, house prices should appreciate in line with household income. By this rule of thumb, house price appreciation is still far from exhibiting signs of frothiness (see chart). Overall, while house prices are fairly well balanced, there are some important regional housing markets where price appreciation is above a sustainable pace. According to Economy.com's index of house price balance, the most overpriced markets are Boston, San Jose and San Francisco. These housing markets had been whipped into a frenzy thanks to the now-defunct Internet boom and the soaring bull market. With the bubble having burst and these economies in or near recession, the high house prices are no longer in line with underlying fundamentals. These housing markets are at risk of an abrupt adjustment in pricing if the national economy deteriorates any further. Nevertheless, even these markets may avoid such a disaster. The San Francisco and Boston markets are underbuilt according to their long-term demand and supply trends. In both of these markets, actual construction levels over the past several years have been insufficient to meet the demand for single-family homes given the demographic and economic trends over the same period. This supply shortfall lessens to some extent the risk of the bottom falling out of these markets. San Jose stands out as being a higher risk, but even here, long-term supply and demand are in balance. While the housing market is still strong, it is evident that housing demand is not quite as hot as it was at the beginning of the summer, when the purchase index hit a new high. Furthermore, housing activity will slow by late fall. The weaker labor market is already slowing income growth. Additionally, some of the current activity may be in advance of the expected rise in mortgage rates. The fiscal stimulus set to occur in the form of tax cuts may help temporarily offset a future rise in rates, but will not likely be sufficient to keep demand for homes as high as it has been. With overbuilding not an issue, there is little likelihood of a reappearance of an early-1990s style-housing bust. Given Economy.com's expectations that economic conditions will not deteriorate much more, inflation adjusted house prices will decline only modestly in the next year. Signs of change are already apparent in San Francisco and Boston, where house price appreciation is already easing. San Francisco house prices are rising at a 3% pace in the second quarter, compared to upward of 20% last year, and Boston house price appreciation has declined from 27% last year to 7%.

To: JoanP who wrote (714)	9/3/2001 8:14:40 AM
From: Tom Gordon	Respond to of 306849

JoanP, get a load of this! This just might deflate your enthusiasm a bit. prudentbear.com Regards TG.

To: JoanP who wrote (714)	9/3/2001 9:11:31 AM
From: Tom Gordon	Read Replies (1) \| Respond to of 306849

Joan, yet another dose of hardcore real estate reality. financialsense.com Regards,TG.

To: JoanP who wrote (714)	9/3/2001 9:55:40 AM
From: C.K. Houston	Read Replies (1) \| Respond to of 306849

< Better times are on the horizon. I expect the economy to begin recovering in 2002. The past 1.5 years have been unpleasant, but things will improve. We are closer to the end of this than the beginning.> Guess it depends on where you live. I doubt that many who live here share the same optimistic view as you. It’s just beginning for them. Plano 75093: Trouble in paradise? dallasnews.com In the 75093 ZIP code, there are 297 homes for sale, with a median price of $414,900, according to Mr. Ellis. As of today, homes priced less than $500,000 have been on the market for an average of 55 days, compared with an average of 42 days for houses on sale in the second half of 2000. "That's a pretty significant increase," he said. "Most of my listings lately have been people who needed to relocate out of town or find new jobs in the [high-tech] industry. Pretty much all of it is telecom-related." … Across the Dallas-Fort Worth area, there are 521 homes for sale for more than $1 million each. "That means there's a whole lot of rich people needing to sell" … Many own sprawling two-story homes, with swimming pools, three-car garages and at least one SUV, the ZIP code's vehicle of choice. Many homes are decorated lavishly, and property values have risen sharply over a four-year period. But Mr. Simontis said … that growing numbers of his friends and neighbors were out of work … Throughout 75093, many residents are cutting their spending, even if the ax has yet to fall, residents said. For many, it's no more eating out, no more maids, no more gardeners. Cars are being sold, cellphone accounts canceled. Thermostats are set warmly at 80. Cable and satellite TV service is reduced to less than "basic," if not eliminated altogether. Garage sales are in. Vacations are out. One of Mr. Simontis' neighbors … recently accepted a promotion with a software company – and was promptly laid off. He immediately put his house on the market, thinking, "How can we possibly meet next month's mortgage payment, let alone pay for everything else?" He estimated the value of his property at $328,000. ====================================================== Caught up in the high-tech meltdown: ‘We’ve just explained to them that Daddy doesn’t have a job’ dallasnews.com Two days after receiving a glowing job review, Dennis Orban, 51, lost a job he'd held for only six months, as product manager for a network communications company, Fujitsu Network Communications in Richardson. The company had hired Mr. Orban in December, moving him from Tampa, Fla. He was making a six-figure salary. His wife and children moved in April. They built a four-bedroom home with 3-1/2 bathrooms in Murphy. By Memorial Day, he was out of work… The Orbans are living off their savings, which were largely depleted by their move to Dallas.