Boom2Bust.com

Labor Day

Due to the Labor Day holiday in the United States, Boom2Bust.com will return on Monday night, September 3.

Have a wonderful weekend,

Christopher E. Hill
Editor
editor@boom2bust.com

The Best Home Price Index

According to the latest quarterly report from the Office of Federal Housing Enterprise Oversight (OFHEO), home prices increased in the three month period ending on June 30. The OFHEO House Price Index (HPI) rose 0.1% when compared to the first quarter of 2007 and 3.2% when compared to the second quarter of 2006. The OFHEO Purchase-Only Index, which excludes refinancings, rose 0.5% from the previous quarter and only 2.6% higher year-over-year. Other reports from the National Association of Realtors and the Case-Shiller Home Price Index have shown price declines and predicted future home price declines. The OFHEO index has never been negative on a year-over-year basis.

Back on February 7, O. Emre Ergungor, an economist at the Federal Reserve Bank of Cleveland, compared the three home price indices and published his findings on the bank’s website. According to Ergungor:

Despite their potential weaknesses, the Case–Shiller Indices are still an improvement over other house price indices commonly cited in the media, one published by the Office of Federal Housing Enterprise Oversight (OFHEO) and another by the National Association of Realtors (NAR). (Freddie Mac also has an index that is very similar to the one published by OFHEO.)

He goes on to explain the differences between the 3 indices:

The Case–Shiller, OFHEO, and NAR indices differ in fundamental ways. The NAR Index does not use a repeat sales methodology but tracks existing homes’ median value—the value at which half of the home values in an area are worth more and half are worth less. But the median can easily be biased by new housing construction in an area. New homes for high-income people will pull the median up, while new homes for low-income people will push it down.

As a result, the index will capture changes in the median price that are related not to changes in home values but to changes in the composition of the housing stock. The OFHEO Index resembles the Case–Shiller Indices in that it utilizes the repeat sales methodology; that is, it tracks the value of individual homes that are resold over time. Its weakness is that it is based solely on houses whose mortgages are purchased by Fannie Mae and Freddie Mac. This prevents the index from representing the entire housing stock of the community. For example, the mortgage of the house that is being followed must be less than Fannie and Freddie’s conforming loan limit—$417,000 for a single-family home in 2006. To put this limit into perspective, note that the median home price in New York City is around $450,000. With 10 percent down, the median house would require a $405,000 mortgage. So the OFHEO Index for New York City could conceivably ignore almost half the housing units in the area. An even larger share of housing units would be left out of the calculations in San Francisco, where the median price is about $750,000.

On August 28, the latest Case-Shiller U.S. National Home Price Index showed U.S. home prices had suffered their worst decline since the creation of the index 20 years ago, according to a report compiled by Standard and Poor’s and economist Robert Shiller. Prices were down 3.2% in the second quarter compared with the same period in 2006. Shiller, the creator of the index and chief economist at New-Jersey based MacroMarkets LLC, added, “The pullback in the U.S. residential real estate market is showing no signs of slowing down.”

Talk Of A Major Stock Selloff

Back on Monday, CNBC reported that “some investors are betting tens of millions of dollars that the market is headed for a selloff — a major selloff.” According to CNBC, over $500 million in put options have been purchased betting that the Standard and Poor’s 500 index will decline anywhere from 5% to 11% next month. Some investors are even buying put options calling for a 52% decline. A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price. Looking at an example provided by Investopedia, if you have one Mar 07 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2007 (usually the third Friday of the month). If shares of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in the market and sell the shares to the option’s writer for $10 each, which means you make $500 (100 x $10-$5) on the put option.

What’s different about the present situation is the amount of money involved. Bill Lefkowitz, options strategist at brokerage firm Finance Investments in New York, told CNBC that, “The activity in those puts has been a lot more aggressive then we have seen in the past… If the Fed doesn’t cut Fed funds, the options market is telling you that the overall stock market will come down hard.” Andrew Wilkinson, a senior market analyst at Connecticut-based Interactive Brokers, added, “We don’t know who the end users of these options are and often they are specialists, pros looking at arbitrage plays, so the common man doesn’t necessarily need to be concerned. But it’s a legitimate build of people wanting protection against the next 10% down should it come.”

According to CNBC, Fed-fund futures and a variety of market pundits have been forecasting a 100% likelihood the Fed will lower the benchmark lending rate, meaning there’s no room in the market from the Fed for a surprise. It will be interesting to see the effect on the financial markets should the Federal Reserve Bank opt to keep benchmark interest rates steady at their September 18 meeting.

Falling Home Prices Set Record

U.S. home prices in the second quarter of 2007 fell 3.2% compared to the same period in 2006, Standard & Poor’s reported earlier today. The price drop marked the largest year-over-year decline ever recorded in the 20-year history of the Case-Shiller home price index. The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metro real estate values. “The pullback in the U.S. residential real- estate market is showing no signs of slowing down,” said Robert Shiller, chief economist at MacroMarkets LLC, which computes the price index for Standard & Poor’s.

Other economists were pessimistic on the sector as well. In MarketWatch today, Charles Dumas, an economist for Lombard Street Research in London, said, “This slow-burn downswing probably has a long way to go… The backlog of unsold homes has reached a level at which buyers are likely to get nasty, insisting on deep price cuts. As repossessed homes come on the market over the next 18 months, downward pressure on home prices and whole neighbourhoods will intensify.” Joshua Shapiro, chief economist for New York-based MFR Inc., added, “We are fast approaching the rate of price decline seen at the end of the 1990-91 recession, and the odds strongly favor blowing past this mark in coming months.” Alan Ruskin, chief international strategist at RBS Greenwich Capital in Connecticut, told Reuters today, “Plainly, there will be worse to come when the heady cocktail of a large inventory overhang is mixed with tighter lending standards.” Economists at Goldman Sachs, who originally predicted the Case-Shiller index would be down 5% on the year by the fourth quarter, said Tuesday’s report creates “downside” risks to their forecast. Andrew Tilton, a Goldman Sachs economist in New York, told Reuters, “It does look like there’s a bit of acceleration in the pace of decline and this comes before the credit crunch.”

While some hope that home values will bounce back quickly once the bottom is reached, the historical data suggests otherwise. MarketWatch noted that the last time prices fell so much, it took more than eight years for home prices to return to their peak level.

Economists Upbeat On Housing

“I’m thinking of leaving my husband,” complained the economist’s wife. “All he ever does is stand at the end of the bed and tell me how good things are going to be.” -Jokes.net

Despite all the negative news coming from the U.S. housing market these days, a recent survey shows a number of economists remain upbeat on the sector. The latest policy survey by the National Association for Business Economics asked members, “Would you buy a house today if you intend to use it as a primary residence?” 3 out of 4 economists responding said yes. 1 out of 3 went so far as to say they would purchase a second home. Yet, when it came to predicting a “meaningful recovery” for the beleaguered housing market, fewer than 1 in 5 economists (out of the 258 responding) expected the rebound to take place by the middle of 2008. About 38% predicted a recovery by the second half of 2008, and 42% said 2009 or later. Long term, survey participants were more positive on the sector’s performance. About 42% of economists surveyed said they expect home prices to be flat, on average, over the next 5 years, while 41% expected price increases. Only 16% of those surveyed expected price declines.

While I respect the views of the professional economists participating in the NABE survey, my interpretation of the data leads me to a different conclusion. Consider the following. The National Association of Realtors reported today that existing-home sales slipped to an annual rate of 5.75 million in July, down 0.2% from the revised 5.76 million pace in June. The number of homes for sale rose to 9.6 months’ supply, up from 9.1 months in June. The glut is the biggest supply of homes since October 1991. Mike Larson, a real estate analyst with independent research firm Weiss Research told CNN Money:

Forget ‘location, location, location.’ The most important factor in today’s real estate market is ‘supply, supply, supply’… We are literally swimming in an ocean of homes for sale. In fact, at 4.59 million units, we have the most raw inventory for sale in history.

The median price of an existing home sold last month fell 0.6% from a year earlier to $228,900. July marks the 12th straight month that the median home price has declined. Mark Zandi, chief economist at Moody’s Economy.com, told Reuters today that, “This shows that the housing downturn continues to intensify. It shows no sign of abating. Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead.”

Sunday Edition: August 26, 2007

The Great American Bailout, Part 3
Earlier this month, U.S. Senator and 2008 presidential hopeful Hillary Rodham Clinton proposed the establishment of a $1 billion fund to bail out homeowners in danger of losing their residences to foreclosure. Now, famed bond fund manager Bill Gross said this week that the White House should bail out millions of American homeowners who are facing foreclosure. The founder of the fixed-income investment firm PIMCO and columnist for Fortune wrote in his monthly investment outlook on PIMCO’s web site:

If we can bail out Chrysler, why can’t we support the American homeowner?… This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hard-working Americans whose recent hours have become ones of frantic desperation… Write some checks, bail ‘em out, prevent a destructive housing deflation that (Fed Chairman) Ben Bernanke is unable to do.

Gross’ policy recommendations including creating an agency to coordinate bailouts or aid for homeowners, and modifications to the Federal Housing Authority program. He argued that a bailout would also benefit Wall Street. Gross predicted that, “Your stocks and risk-oriented levered investments will spring to life like the wild flowers in Death Valley after a flash flood.”

And I thought the Clinton plan was nuts. Peter Schiff does a fine job at explaining the negatives behind such a proposal in Friday’s Market Oracle:

Setting aside the constitutional or ethical arguments against it, the cost of such a bail out would be staggering. My guess is that the price tag would exceed one trillion dollars (Gross estimates the cost at only around $200 billion). Even if Gross’ numbers are accurate, it still represents a significant sum which we would likely have to borrow from abroad. What Gross fails to consider is the moral hazard implicit in such a bail out. Were the government to create a program whereby anyone falling behind on their mortgage could have their loan restructured to some lesser amount with lower payments, one would have to be an idiot not to take advantage of it. If such a nutty plan were ever implemented, it would not be 2 million homes going into foreclosure as Gross fears, but 20 million.

And guess who’ll be stuck with the bill…

Goldman Sachs Housing Study
According to Friday’s Wall Street Journal, the chief U.S. economist at Goldman Sachs feels home prices remain relatively expensive when compare to typical family income. Jan Hatzius says that during the housing boom years of 2000 to 2005, the ratio of the median-price home to the median family income rose 42% above the mean ratio of the previous 25 years, mainly due to escalating home prices. Even though housing prices have declined since, the price-to-income ratio still remains 32% above the mean. “Unless household incomes start rising rapidly, housing prices could have a lot further to fall,” said the Journal.

Have a wonderful week,

Christopher E. Hill
Editor
editor@boom2bust.com

Behind The New-Home Sales Data

The U.S. Commerce Department estimated Friday that sales of new homes increased 2.8% in July to a seasonally-adjusted annual rate of 870,000 as the inventory of homes for sale dropped for a fourth straight month. Economists had been looking for sales to decline to a rate of about 825,000, a level that would have been a seven-year low. “Our expectations are so low that we get excited about” a number such as 870,000, said Art Hogan, chief market strategist at Jefferies & Co., an investment banking and institutional securities firm. “It’s all relative right now,” he told MarketWatch today. Wall Street shared in the excitement, where the stock market closed sharply higher due in part to the upbeat news coming from the housing market.

And the most likely reason behind July’s increase in new-home sales? It’s not that the U.S. housing market is improving. Rather, home builders have been cutting prices and/or offering non-price sales incentives to move inventory. As a result, the average price of a new home sold in July fell to $300,400, down 3.4% from a year earlier. The median price edged up 0.6% to $239,500 from a year earlier but it’s still off 8.8% from the record high hit in March 2007. In the latest survey by the National Association of Home Builders, almost 3/4 of builders surveyed reported offering extras, such as paying for closing costs or adding features for free.

Perhaps Wall Street shouldn’t get too excited about the latest sales numbers. The pace of new-home sales is still off 10.2% from a year ago. Economists are also predicting that recent problems in the secondary market for mortgages, where subprime mortgages and “jumbo mortgages” are tougher to get, will weigh on future sales numbers. “We were in a slightly stronger position going into this latest hurt than we thought we were. That’s the good news,” said Bill Hampel, Credit Union National Association’s chief economist. “But this is probably the last bit of good news we’ll get from this market for a long time,” he told CNN Money today.

We’ll just have to wait until Monday when the existing-home sales data is released…

Countrywide CEO Hints At Recession

Countrywide Financial Corp. Chief Executive Angelo Mozilo earlier today warned that the ongoing U.S. housing market slump could lead to recession. On CNBC, Mozilo said the housing market is not getting any better and that there is a “very serious situation going on.” When asked if there would be a recession, Countrywide’s CEO said:

“I think so… I know I’ve been proven wrong so far, but I can’t believe that when you’re having a level of delinquencies, foreclosures - equity has disappeared, equity is gone, the tide has gone out - that this doesn’t have a material effect on the psyches of the American people, and eventually on their wallet.”

Mozilo added that, “I’ve seen this movie before, and the ending of the movie always ends up in some form of recession.” He concluded that the markets are in “one of the greatest panics I’ve ever seen in 55 years in financial services.”

These statements come in the wake of a report issued Tuesday by RealtyTrac, the online marketer of foreclosure properties. RealtyTrac’s data shows that 179,599 foreclosure filings (which include default notices, auction sale notices, and bank repossessions) were reported nationwide in July for a 9% increase over June and an astonishing 93% jump year-over-year. As a result, RealtyTrac has raised its forecast on the number of U.S. foreclosures for 2007. Rick Sharga, RealtyTrac’s vice president for marketing, told CNN Money on Tuesday that, “It’s trending close to 2 million now, 60 percent more than last year.” Moody’s Economy.com predicts an even higher number at 2.5 million foreclosures for the year. Back on June 5 a Boom2Bust.com post talked about the predictions by Housing Predictor.com and the Center for Responsible Lending, which called for millions of residential property foreclosures in the next couple of years, effectively wiping out the number of homeowners (2 million) thought to have been created by the housing boom.

Two new readings on the U.S. housing market are to be released in coming days. Tomorrow new-home sales will be reported, followed by existing-home sales next Monday. The Wall Street Journal said today that, “Economists expect the data to be weak, and are looking more closely at the effects on the broader economy.”

Job Losses Mount From Housing Slump

If you’re searching for a job these days, you’re in for some additional competition. According to the Associated Press today, more than 25,000 workers across the United States have lost jobs in the financial services industry since the beginning of the August, with more than half coming since last Friday. The job cuts are the direct result of woes in the nation’s housing market.

Since the beginning of 2007, more than 40,000 workers have lost their jobs at mortgage lending institutions, according to Chicago-based global outplacement firm Challenger, Gray & Christmas Inc. In addition, construction companies have announced nearly 20,000 job cuts to date. Actual losses might be much higher because many crews are small operators with independent contractors as well as many illegal immigrants. The National Association of Realtors is even looking at a decline in membership for the first time in a decade.

Bart Narter, a senior analyst with Boston-based financial research and consulting firm Celent told the Associated Press that, “It’s far from over. The subprime lending collapse will continue to ripple through the financial sector.”

U.S. Cut Off From Oil Supply

Oil prices dropped earlier today as investors breathed a sigh of relief that Hurricane Dean spared key U.S. energy infrastructure in the northern Gulf of Mexico. The news sent crude for September delivery down $1.65, or 2.3%, to $69.47 a barrel on the New York Mercantile Exchange. October crude, which became the lead-month contract at the session’s end, closed $1.39 lower at $69.57 a barrel. In addition, energy stocks were pummeled as the storm premium unraveled. On the other hand, as I alluded in this Sunday’s post, the storm passed through Mexico’s Bay of Campeche, home to the giant Cantarell complex of oil fields and a significant concentration of Mexico’s oil production. No news regarding damage has been released as of yet.

Pemex, the state-owned oil company, withdrew 19,000 workers from 437 oil pits ahead of Hurricane Dean. As a result, 2.6 million barrels of oil per day and 80% of Mexico’s oil production are shut in. Mexico was the United States’ second-largest source of foreign petroleum products in May (the latest month for which statistics were available, according to the U.S. Department of Energy). The U.S. imported 1.6 million barrels of petroleum a day from Mexico in May, slightly more than Saudi Arabia’s exports to the United States but well behind Canada’s 2.5 million barrels. Mexico’s oil exports account for about 15% of U.S. oil supplies, according to MarketWatch. If 80% of Mexico’s oil production is now shut in due to Hurricane Dean, the United States is cut off from approximately 12% of its oil supply. Yet, Americans celebrate Hurricane Dean’s “close-call.” According to the Xinhua News Agency today, “Pemex stated it will be difficult to comply with its international commitments in the forthcoming days, in other words, its crude oil exports to the United States.” Pemex has oil reserves of 10 million barrels to help meet export contracts during the shutdown, said spokeswoman Martha Avelar in a telephone interview with Bloomberg today. Seeing that Mexico exported 1.79 barrels of oil per day in 2006, that leaves approximately 5.6 days’ worth of oil reserves available for export.

Talk about a potential U.S. economic crisis…

When The World Was Our Mall

A few years ago I was fortunate enough to travel to Europe and benefit from a strong U.S. dollar. Since then the greenback has declined significantly, and I had serious doubts whether I would go overseas again anytime soon. I’ve heard plenty of stories of fellow Americans who were reduced to window shopping on their European travels as a result of an unfavorable exchange rate caused by a weakening dollar. By the beginning of August, the euro had reached an all-time high against the dollar and the British pound reached a 26-year peak. Meanwhile, the greenback sank to a 22-year low against the New Zealand dollar, an 18-year low against the Aussie dollar, and a 30-year low against the Canadian dollar. Kenneth Rogoff, professor of public policy and economics at Harvard, told the Chicago Tribune yesterday that, “Over the next few years the dollar will continue to go down. The question has just been how fast and how soon? The bill is coming due for a decade of massive U.S. over-borrowing. Economists are predicting that a 20 percent further drop is likely in the next three to five years, and a 40 percent drop is possible.”

The Tribune explained their version of why the U.S. dollar is declining:

Why are we playing a dirge for the dollar? Blame an American economy that’s faltering while others prosper, the sub-prime mortgage crisis and the $800 billion we put on the nation’s credit card every year. Interest rates are steady here but poised to move higher in Australia, New Zealand and Britain, so foreign investors are chasing higher returns by investing there, not here… Less demand for the dollar means a lower exchange rate. For Americans that means higher prices of crepes in France, paella in Spain and burgers in Canada.

“Within an economy, exchange rate is one of the most difficult factors to explore and to forecast,” said John Kester, chief of market intelligence in Madrid for the World Tourism Organization, a special branch of the United Nations. Kester told the Tribune that, “The dollar to the euro is weaker than ever and, in the long-term, the weakness will go on because it reflects imbalance in the U.S. economy.”

Thankfully, there is a silver lining to all of this. The Chicago Tribune identified several foreign destinations where U.S. travelers can still find good bargains, despite the greenback’s problems. These include:
• Central and South America
• Most of Asia, especially countries with low labor costs such as Malaysia, Thailand and Vietnam
• Turkey and Egypt, which have the infrastructure developed to support tourism but lower wage levels and costs of living
• And if you must visit the Old World, countries not yet tied to the euro in Central and Eastern Europe, such as the Czech Republic, are a good bet

I couldn’t agree more with the author of the piece, Diana Dawson, who reminisced, “Blasted dollar. It got us so far for so long. The world was our mall and travel was cheap… But it couldn’t last forever.”

Sunday Edition: August 19, 2007

No More Weekend Editions
When I was in high school my English teacher (who bore a striking resemblance to Mr. Kotter from Welcome Back Kotter) had us read the book Iacocca: An Autobiography. For the younger readers out there, Lee Iacocca is a former CEO of Chrysler who is credited with turning around the carmaker’s fortunes in the 1980s after it was on the verge of bankruptcy. As a result, he became one of the most widely-recognized businessmen in the world. One custom that Mr. Iacocca shared in his book that really impressed me was that in spite of all his hard work, he was adamant in setting aside Friday night, Saturday, and Sunday for his family. Only on Sunday night would he crack open the briefcase and get a head start on the coming work week.

In tribute to Mr. Iacocca, instead of posting an occasional “weekend edition,” a “Sunday edition” will be posted on a regular basis from this point onward. Therefore, 6 out of 7 days a week you will now be able to find new material at Boom2Bust.com.

Thar She Blows!
After a slow beginning to the 2007 Atlantic hurricane season, Hurricane Dean is making headlines as it marches through the Caribbean. When I first saw that the projected path of Dean was shifting south, I was glad that the probability of the storm making landfall in the United States, especially in populated areas and/or in the vicinity of energy infrastructure, was diminishing. However, upon looking closely at the U.S. National Hurricane Center’s 3-day projected path, I noticed that the hurricane appeared to be headed in the direction of Mexico’s Bay of Campeche, located off the south-eastern coast of the country in the Gulf of Mexico. The significance of this area is that it accounted for 73% of Mexico’s total crude oil production in 2005.

The Bay of Campeche is the site of Mexico’s Cantarell oil field, one of the largest oil fields in the world, according to the Energy Information Administration (EIA). In 2005, Cantarell oil made up 60% of Mexico’s total production. Also in that year, Mexico was the second largest source of crude imports for the United States.

Energy markets have been volatile since 2004 and 2005 when hurricanes Ivan, Katrina, and Rita pummeled energy infrastructure on the U.S. Gulf Coast. The Gulf of Mexico accounts for roughly 1/3 of domestic U.S. oil production and more than 15% of its natural gas. Also, almost 1/2 of U.S. refining capacity is located in Gulf Coast states and is vulnerable to storm damage.

As I write this, Reuters is reporting that oil prices have tumbled over 1% in early overseas trade as Hurricane Dean appeared unlikely to disrupt key production and refining centers in the U.S. Gulf Coast region. “Oil prices are falling because Hurricane Dean is heading away from the U.S. oil centres. That’s the main factor driving down prices,” said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

However, the U.S. National Hurricane Center is forecasting that while Dean could spare the U.S. Gulf Coast it could strengthen into a rare and potentially catastrophic Category 5 storm and slam into Mexico’s Yucatan Peninsula.
If Dean crosses the Yucatan and enters the southern Gulf of Mexico, it could disrupt oil production in the Gulf of Campeche and cause havoc in the global oil market. Earlier today Reuters reported that Mexico has already started to evacuate 13,360 workers from its Gulf of Mexico oil rigs. According to the state oil company Pemex, the impact of the evacuations on oil production will be known early Monday. A company spokeswoman said, “Production is currently normal, but this (the evacuations) will affect production. We will have an idea (of how much) early on Monday.”

Time’s Up
Back on June 21, I published “Housing Slump Ends In 2 Months.” The post focused on Bank of America’s Chief Executive Officer Kenneth Lewis, who told Bloomberg on June 19 that the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters,” and the slowdown in home sales is “just about to be over.” He went on to declare that the housing market will begin to improve in the next month or two, forestalling a recession. And I wrote, “It will be interesting to see just how Mr. Lewis’ housing prediction pans out 2 months from now. I’m circling August 19 on my calendar…”

August 19 is here, and the signs of an improved U.S. real estate market are missing. July new-home sales are predicted to have slowed to a 10-year low when announced later this week. Inventories of unsold homes on the market represent an 8.8-month supply at the June sales rate (last month reported), the highest inventory of homes for sale in 15 years. The slump has been made worse in recent months by turmoil in the mortgage market triggered by rising defaults by subprime borrowers falling behind on payments on adjustable-rate loans. Many of those borrowers are in or heading toward foreclosure, adding to the already large inventory of homes for sale and weighing on home prices. A wave of defaults has already forced banks to tighten mortgage lending standards, which will likely prolong the worst real-estate slump in 16 years. The weak housing market is also expected to weigh on economic growth in the second half of 2007 as demand falls for construction materials, appliances, and home furnishings.

Have a wonderful week,

Christopher E. Hill
Editor
editor@boom2bust.com

Survey Says…

A couple of years ago I made the decision to push back buying a home and continue renting due to uncertainties with my employment situation and also because I was wary of the U.S. housing bubble that was being created. As fate would have it, the American housing boom reached its zenith by August 2005 and we are now in the midst of a “housing recession.” While I remain on the sidelines and wait for a good time to enter the housing market, I like to keep a close eye on U.S. home values. Last night, I compiled some of the latest forecasts for housing prices in 2008 and beyond. Here’s what I found:

The Jackson Times (NJ) today quoted Lawrence Yun, senior economist at the National Association of Realtors, as saying:

With the population growing, the demand for homes isn’t going away – it’s just being delayed. More buyers, and cutbacks in new construction, will eventually draw down the inventory levels and support future price appreciation, but general gains will be modest next year.

Yun and the NAR are predicting existing-home prices should decline by 1.2% to a median of $219,300 in 2007 before rising 2% next year to $223,600. They also forecast that the median new-home price will probably fall 2.3% to $240,800 in 2007 and rise 2.3% percent next year to $246,300.

Reuters reported yesterday that Daniel Mudd, chief executive of the Federal National Mortgage Association, or “Fannie Mae,” said in a conference call that, “This correction is going to continue through next year…” Mudd said Fannie Mae is forecasting home prices to drop nationally by 2% this year and 4% in 2008.

Also on Thursday, the Wall Street Journal reported that, “Home prices will drop 2.9% this year and 5.7% next year, according to estimates by Fiserve Inc. unit Fiserv Lending Solutions and Moody’s Economy.com.” The Journal noted that according to David Stiff, Fiserve Lending Solutions’ chief economist, many of the metropolitan areas that experienced home-price bubbles also possess large numbers of jumbo-mortgage originations (there has been a recent run-up in rate quotes for mortgages larger than $417,000- “jumbos”- as a result of subprime mortgage problems spilling over to other credit classes) and will most likely be among the weakest segments of the U.S. housing market.

According to the Associated Press today, James Fotheringham, an analyst at investment bank and securities firm Goldman Sachs, said in a research note that, “Industry trends are not improving. Home prices are 13 percent to 14 percent overvalued (which could take several years to play out).”

So which forecast do we believe? Personally, I tend to be suspicious of trade group forecasts. But I do know this. I’m content to sit on the sidelines for now and let the housing slump pan out. I have a feeling there are numerous others like me, much to the displeasure of real estate agents nationwide.

New Updates!

If you’re a regular reader of Boom2Bust.com, you may notice some new updates to the blog:
• Readers can now share posts by selecting “Share This” and/or conduct additional research on the topic by selecting “Sphere: Related Content” at the end of each entry.
• In The Evidence, I’ve finally jotted down the reasons as to why I believe a major U.S. financial crash is imminent. And no, that’s not me at the bottom of the page.
• In Resources, you’ll find links to the different websites I use in my research. I will add new hyperlinks as I see fit in the future.
• Finally, I’ve cleaned up the overall appearance of Boom2Bust.com. I’ve even added a Yahoo! avatar of myself in the sidebar. And yes, I’m really that macho looking (in my dreams).

As I really begin to ramp up operations at Boom2Bust.com this month, I hope you visit the blog often. And as always, please do not hesitate to contact me should you have any questions, concerns, or ideas on how to make your experience more worthwhile at Boom2Bust.com.

Thanks again!

Christopher E. Hill
Editor
editor@boom2bust.com