Boom2Bust.com

Weekend Edition: July 21-22, 2007

I’ll admit it- I’m a packrat. I think I inherited this trait from my parents, who never throw out anything and are renowned for the quantity and quality of items made available at their garage sales. My problem is with paper- lots and lots of paper. Yet, there are occasions when a few useful items turn up in the clutter. Case in point, the August 14, 2005, issue of Parade, a newspaper magazine found in your Sunday paper. I remember saving this particular issue because it focused on the U.S. housing market. I had a pretty good idea we were fast approaching the residential real estate market top, and wanted a “keepsake” to remember the housing bubble by as well as use as a point of reference in the future.

The U.S. housing market was still in a state of euphoria that summer. Research by the National Association of Realtors (NAR) in July 2005 showed:
• The median price of existing homes was $219,000, 14.7% higher than 12 months earlier.
• Sales of existing homes over that last year set records, with increases in 44 states.
• The rate of new home sales reached 1.3 million units.

Parade described the frenzy in detail:

We’re in one of the most gung-ho real estate markets since pioneer homesteaders raced covered wagons to stake a claim. SUV’s now screech up to open houses where passionate shoppers compare square footage and granite countertops. The Internet has become a mega open house with people checking their homes’ worth- and what their neighbors’ sold for.

American homeowners bought into the hype as well. Parade poll respondents in 2005 revealed that 61% of U.S. households believed the upswing in housing prices would continue, and 47% of Americans said investing in the real estate market back in August 2005 was a wise decision. According to David Lereah, the chief economist for the NAR at that time:

The reason we’re in this boom is the biggest generation ever- the boomers. They are in their peak earning years and spending on real estate at a record-setting pace. Will the boom last forever? No. But it will last as long as the boomers are in it- probably another 10 years.

Just 2 years later, the story is quite different. On Friday, CNBC real estate reporter Diana Olick characterized the U.S. housing market as “quite weak, as new and existing home sales show no sign of recovery, and prices for both continue to slide from their peaks in 2005.” Challenging recent claims that the housing decline is at or near a bottom, Olick stated:

For those who may have thought the worst was over for the housing industry, none other than Federal Reserve Chairman Ben Bernanke this week threw cold water on that hope when he revised his own prognosis… Chairman Bernanke admitted that, “conditions in the subprime mortgage sector have deteriorated significantly, reflecting mounting delinquency rates on adjustable-rate loans.” He went on to say that, “the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending.”

Today Bloomberg said that housing reports this week are forecast to show a continuation of the U.S. housing recession. According to economists surveyed by Bloomberg, existing home sales fell to an annual rate of 5.87 million, the lowest in 4 years, from a 5.99 million annual pace in May. The report from the National Association of Realtors will be released on July 25. Government figures due out the next day may reveal that new home sales fell to an 892,000 annual rate in June from 915,000 in the previous month. Federal Reserve policy makers last week lowered forecasts for U.S. economic growth this year and in 2008 as a recovery in home building remains to be seen…