Post by unlawflcombatnt on Sept 20, 2007 2:23:32 GMT -6
from the Financial Times:
US housing outlook worsens
By Eoin Callan
9/18/07
"The outlook for the US housing market worsened on Tuesday as builder confidence about future sales fell to an all-time low.
The National Association of Home Builders said housing developers’ expectations for fresh demand had dropped to its lowest point since records began 22 years ago.
The deteriorating conditions in the housing market provided the backdrop for Tuesday’s decision by the Federal Reserve to cut interest rates by half a percentage point.
Overall builder sentiment fell for a 7th consecutive month to match the record low last seen in 1991 when the US was in the midst of a deep recession....
the steady erosion of confidence in the US housing market has also significantly undermined economic prospects.
Alan Greenspan told the Financial Times this week he expected the fall in US house prices would be “larger than most people expect”. He predicted “as a minimum, large single-digit” percentage declines and would not be surprised if the fall was “in double digits” from the market peak.
The housing downturn follows a period when there was a widespread belief that houses were a no-lose investment opportunity, which Mr Greenspan described as a “bubble”.
But the investment boom fuelled by high-risk variable subprime mortgages petered out....
“That fall has now begun,” Martin Feldstein, head of the National Bureau of Economic Research, told central bankers recently, citing private surveys pointing to a 3.4 per cent drop in prices nationally in the past year.
As a leading indicator of housing market conditions, the falls in the NAHB index to historic lows has prompted many economists to slash their forecasts for house prices.
A two-year market downturn has created excess inventories of unsold new homes, forcing builders to cut prices and offer incentives to boost sales. Sales have been curbed further as lending conditions have tightened following a spike in defaults on subprime mortgages....
In previous economic downturns, when housebuilder sentiment sharply worsened, consumer spending has usually not been far behind.
Historically there has been a high correlation between the quarterly readings of the index of the housing market and real personal consumption expenditure.
But economists said the key driver of consumer spending in this cycle was likely to be house prices.
David Rosenberg, at Merrill Lynch, is one economist expecting the kind of large-scale falls in house prices that would hit household purchasing, and is predicting falls in prices of up to 20 per cent nationally from their highs over the next 18 months.
Such a decline would be unprecedented in government records and would put the economy at serious risk of recession, according to many economists, and lead to a wave of foreclosures.
Recent purchasers of homes with a loan-to-value ratio today of 80 per cent could find themselves with a mortgage that exceeded the value of the house by 20 per cent or more.
History suggests that, as loan balances exceed the value of the home, homeowners are more likely to walk away from their -mortgages. The process is likely to lead to a snowball effect, putting more homes on the market and driving prices down further."
US housing outlook worsens
By Eoin Callan
9/18/07
"The outlook for the US housing market worsened on Tuesday as builder confidence about future sales fell to an all-time low.
The National Association of Home Builders said housing developers’ expectations for fresh demand had dropped to its lowest point since records began 22 years ago.
The deteriorating conditions in the housing market provided the backdrop for Tuesday’s decision by the Federal Reserve to cut interest rates by half a percentage point.
Overall builder sentiment fell for a 7th consecutive month to match the record low last seen in 1991 when the US was in the midst of a deep recession....
the steady erosion of confidence in the US housing market has also significantly undermined economic prospects.
Alan Greenspan told the Financial Times this week he expected the fall in US house prices would be “larger than most people expect”. He predicted “as a minimum, large single-digit” percentage declines and would not be surprised if the fall was “in double digits” from the market peak.
The housing downturn follows a period when there was a widespread belief that houses were a no-lose investment opportunity, which Mr Greenspan described as a “bubble”.
But the investment boom fuelled by high-risk variable subprime mortgages petered out....
“That fall has now begun,” Martin Feldstein, head of the National Bureau of Economic Research, told central bankers recently, citing private surveys pointing to a 3.4 per cent drop in prices nationally in the past year.
As a leading indicator of housing market conditions, the falls in the NAHB index to historic lows has prompted many economists to slash their forecasts for house prices.
A two-year market downturn has created excess inventories of unsold new homes, forcing builders to cut prices and offer incentives to boost sales. Sales have been curbed further as lending conditions have tightened following a spike in defaults on subprime mortgages....
In previous economic downturns, when housebuilder sentiment sharply worsened, consumer spending has usually not been far behind.
Historically there has been a high correlation between the quarterly readings of the index of the housing market and real personal consumption expenditure.
But economists said the key driver of consumer spending in this cycle was likely to be house prices.
David Rosenberg, at Merrill Lynch, is one economist expecting the kind of large-scale falls in house prices that would hit household purchasing, and is predicting falls in prices of up to 20 per cent nationally from their highs over the next 18 months.
Such a decline would be unprecedented in government records and would put the economy at serious risk of recession, according to many economists, and lead to a wave of foreclosures.
Recent purchasers of homes with a loan-to-value ratio today of 80 per cent could find themselves with a mortgage that exceeded the value of the house by 20 per cent or more.
History suggests that, as loan balances exceed the value of the home, homeowners are more likely to walk away from their -mortgages. The process is likely to lead to a snowball effect, putting more homes on the market and driving prices down further."