Housing Market to Dip in 2006, Bounce Back in 2007 According to Economists
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Cathy Minehan, the head of the Federal Reserve Bank of Boston and David Lereah, the chief economist of the National Association of Realtors, told a group in Boston yesterday that the housing market will slow down in 2006 and into 2007 but then rebound at a slower rate later in that year. This is good news for the New England region that is has housing costs and higher costs of living across the board.
“The air is coming out of the balloon,” Lereah said, who argues a balloon is a better metaphor than a bubble to describe a market he characterized as going through a temporary price correction rather than a collapse. “The bubble is not bursting.
“The solid fundamentals in our economy will keep the real estate expansion alive,” Lereah told about 250 real estate agents at the New England Realtors Conference.
Lereah said predictions of a housing bubble are based largely on data showing a widening gap in personal income growth compared with more rapidly rising housing costs. He said such comparisons ignore the fact that interest rates remain historically low despite recent increases, putting monthly mortgage payments within reach of most consumers.
“You do have an economy that is growing,” Lereah said. “You have mortgage rates below 7 percent.”via Boston.com.
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Comment by twist on 18 June 2006:
David Lereah’s comments that “predictions of a housing bubble are based largely on data showing a widening gap in personal income growth compared with rapidly growing housing costs.” While that gap is certainly a factor, Mr. Lereah is ignoring the two bigger stories- record levels of debt, and an ever increasing inventory. The law of supply and demand more than any other factor is going to dictate the rate at which the landing will achieve.
Consider the Phoenix market- which has been one of the “hot” markets of the past couple of years. The following is a graph I generated from Phoenix are listings vs. sales.
http://housingdoom.com/bubble/2006/06/12/you-only-have-a-few-prime-weeks-left-to-sell-your-home/
Inventory, I believe, more than any other factor is going to bring the prices down. While homeowners may sometimes have the luxury to delay a sale for years, the builders won’t have that opportunity. They are going to have to clear that inventory. So far they have been creative with incentives, but more agressive moves on their part will drive prices down. It only remains to be seen how quickly.
Comment by Ruben on 18 February 2007:
Your wrong this fall has only begun we’re entering what I call stage two stage one denial is starting to end. Stage 2 is where people start cutting the prices of their homes by 10 - 20 thousand dollars at a time and I’m talking about the cheaper homes. I’m talking CA market. The foreclosures will start to go up on auctions and then the ballon will really start to hurt. This fall is going to be big and I don’t need your expert studies I know it people are overextended by the millions and they have no choice but to walk away from their mortgages!! Stage 3 is the bursting of the bubble right now it’s leaking badly stage 3 is the burst these things take time people are struggling trying to survive right now over extending their credit cards which is on ly putting them deeper tell they finally admit the truth! BOOM!!!