I’m just reporting one company’s opinion, not suggesting it to be the gospel
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Homes are on sale across the US at prices that would have sparked stampedes three years ago. But buyers are wary. With foreclosures accelerating and asset values expected to slide further in 2008, why buy a house now when prices look likely to drop even more?
As everyone probes for the market’s floor, a range of factors is pushing prices down. Builders are discounting units to clear out inventory and generate cash but their last round of sharp price cuts failed to boost sales. The stockpile of unsold existing homes has grown by 59 per cent in two years to 4.45m. Buyers are skittish over the health of the economy and are finding it harder to secure mortgages. And President George W. Bush’s subprime relief proposal will help only a specific band of homeowners.
Derivatives priced off the Residential Property Index, a new gauge of residential real estate values, imply an 8.2 per cent drop in prices nationwide next year. The RPX, one of several competing measures of housing prices, indicates that home values nationwide have slipped 5 per cent since September 30.
Prices around Los Angeles and Miami are expected to fall 19 per cent between last September and next. That may seem steep but in one former bubble market, Las Vegas, housing prices shot up 40 per cent in 2004 alone. In regions such as those that experienced speculative booms, the cycle has not yet played out. Significant additional markdowns next year are still warranted.
Pending home sales nationwide have unexpectedly risen now for two months. Those numbers do not presage a recovery but they suggest the staggering market may finally be finding a foothold. Prices will continue to slide next year, and certain regions with heavy subprime concentration are sure to be hit even harder than expected. But with bail-outs and lower interest rates filtering in, a broad-based freefall is unlikely.
