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

To: Jim McMannis who wrote (15297)	12/1/2003 8:50:18 AM
From: biometricgngboy	Respond to of 306849

Focus on interest rates is single-minded myth GUEST OPINION: Al Hoffman Published by news-press.com on December 1, 2003 Re: ?Fed action may cool homebuilder stocks,? Danielle Sessa, Bloomberg News, Real Estate section, Nov. 16. This piece sounded an outdated yet all too familiar refrain: Rates will rise and homebuilder stocks will fall. Housing bubble theorists have long embraced the single-minded focus on interest rates as the sole predictor of the industry?s fortune. Those who perpetuate this myth would benefit from a quick history lesson and a closer examination of the realities of today?s homebuilding industry. It?s no secret that historic low interest rates have helped spur new and existing home sales and mortgage refinancing nationwide. As a result, the American dream of home ownership is now a reality for record numbers of first-time homebuyers, while existing homeowners continue to fuel both the trade-up and second-home markets. In terms of affordability, Harvard?s annual housing report suggests that ?home prices have grown only about as fast as incomes in most areas,? while a leading index suggests that America?s greatest tangible asset is more affordable today than a decade ago. Unfortunately, this abundance of good news for American consumers and homebuilders continues to be overshadowed by waves of speculation touched off by rising rate forecasts. The last wave started in mid-June, when 10-year Treasury yields bottomed out at 3.1 percent. As 10-year yields moved higher, the average 30-year fixed mortgage rate rose from 4.99 percent in mid-June to 6.25 percent by the end of August. In turn, financial pages were overrun with bearish columns equating the rise in rates with an undeniable housing bubble signal and an even more sobering death knell for the nation?s homebuilders. Yet the industry?s response in the period that followed could be described as anything but a collapse. First, U.S. home construction rose in September to its second-fastest pace since 1986, then new starts for single-family homes climbed to a record 1.62 million in October. And while many naysayers would like to attribute the robust pace to housing built on speculation, most builders were actually working to fill a backlog of orders. Another record was logged in September ? a salient demand-side observation in Bloomberg?s article ? as consumers bought homes at a record pace of 7.835 million. Going forward, studies indicate we could see continued strong growth this decade in both the pool of prospective homebuyers and the number of new households. The U.S. Bureau of the Census and Harvard?s Joint Center for Housing Studies forecast new household growth possibly exceeding 12 million units this decade with total housing demand ? new and replacement housing ? likely exceeding the 16.6 million units built and manufactured from 1991 to 2000. Equally bullish, a 2003 Stern Stewart & Co. report forecast demand for 1.5 million housing units annually through 2020. The rate of home purchase also speaks to the increased competition and sophistication in the mortgage banking industry. In a rising rate environment, today?s homebuyers can lower their monthly payments by tapping a variety of adjustable-rate mortgages rather than the traditional 30-year fixed rate loan. Moreover, rate concerns are non-existent for many high net-worth move-up and second homebuyers who purchase their homes entirely with cash. Buyers in these segments tend to be more sensitive to the overall strength of the economy than to any variations in interest rates. ? Al Hoffman is CEO, WCI Communities Inc. news-press.com