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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (293118)	7/3/2006 3:57:44 PM
From: tejek	Read Replies (1) \| Respond to of 1573921

Study: Housing bubble likely to deflate slowly Fears of market meltdown exaggerated, Harvard researchers say ANALYSIS By Dean Foust Updated: 4:55 p.m. PT June 15, 2006 Researchers at Harvard predict that jobs growth and increased demand for homes will let the market down gently. Gloom has spread like a storm through the housing market in recent months. With rising interest rates and fears of falling demand, housing stocks have slid sharply. D.R.Horton, Pulte Homes, Lennar, KB Homes, and Toll Brothers have lost between one-third and one-half of their market values since their peaks last summer. The research firm A.G.Edwards & Sons declared in a note to clients that "the soft-landing thesis for the homebuilding industry is dead." But are fears of a housing market meltdown exaggerated? That's the conclusion of a new study by Harvard University's influential Joint Center for Housing Studies. In its annual State of the Nation's Housing report released June 13, researchers took a more sanguine view of the outlook for the real estate market than the growing number of bears predicting that overheated markets like New York, Washington, and South Florida could see a 20 percent to 30 percent price decline in coming years. Make no mistake, researchers at Harvard are expecting a slowdown from the torrid pace of recent years, given the rise in interest rates and the surge in energy prices pinching many household budgets. But Harvard's housing scholars believe that those economic headwinds will be offset by continued employment growth, and, thanks to steady flows of immigration, an increase in the number of households that will buttress demand. As a result, they subscribe to the "soft landing" scenario in which price appreciation cools and the nation's housing stock holds its value. And if the bubble does deflate, the study's researchers believe it will "deflate slowly rather than burst suddenly." "We don't see any reason for a panic," says Rachel Drew, a research analyst at Harvard who co-authored the study. Which isn't to say that housing prices couldn't go down in some markets. Researchers note that in the past 30 years, nominal house prices have fallen by 5 percent or more at least once in about half of the nation's 75 largest metro areas. But, notes Drew, every time a local market has suffered a crash—as happened with Texas in the 1980s and California in the early 1990s—the cause wasn't an overheated market. Two other factors mattered more: Years of overbuilding by developers that left those areas saddled with massive inventory overhangs and major losses of employment (caused by the oil bust in Texas in the 1980s and cutbacks by the aerospace and defense industry in California in the 1990s). Now, Drew expects demand to remain relatively strong. Thanks to immigration and continued employment growth, the Harvard team projects growth in the number of U.S. households to accelerate from about 12.6 million over the past 10 years to 14.6 million over the next decade <b.(although one concern the Harvard researchers note is that too much recent job creation is in lower-paying jobs). They expect the supply side of the equation to remain in balance as well. In past housing busts, developers were guilty of failing to anticipate the economic downturn and were left with a huge glut of unsold homes that only exacerbated the downturn. Drew notes that developers have been prudent in anticipating the cooling of the housing market and last year began sharply curtailing the construction of homes built on spec. As a result, the nation currently has a six-month supply of unsold homes (counting sales of new properties and resales of existing homes), which is roughly in line with past housing cycles where a boom was followed by a soft landing. "In no markets are we seeing major employment losses and overbuilding right now," says Drew. "If that pattern were to hold, we wouldn't expect to see major declines." CONTINUED: Strong equity -------------------------------------------------------------------------------- 1 \| 2 \| Next > msnbc.msn.com