IT'S BEEN POSSIBLE OVER THE LAST SEVERAL months to pick up one newspaper and learn that the housing market's boom continues, only to read a headline somewhere else declaring proof of a bursting bubble. We're told that prices and sales are up, but so are inventories, and confidence among both consumers and builders is down.
It's tough to sort out the real story of today's market through the seemingly conflicting reports. Can it all be true?
Yes, for a short time. Housing is starting to retreat from its peak, which Freddie Mac chief economist Frank Nothaft says it hit over the summer. Monthly data have begun to reflect a downward trend, but quarterly and annual data still factor in the spring and summer's outstanding performance.
When the books close on 2005, it will have been yet another record-breaking year. But a number of economists say a shift toward a cooler market started in mid-September. Brian Carey, an economist with Economy.com, says the higher mortgage rates were the first factor to slow housing down. He's seen proof of the cooldown in the Mortgage Bankers Association's weekly loan applications survey, which reported that mortgage applications for purchase were down 7 percent over the last two months.
Local newspapers have focused on rising inventories of homes for sale and a decline in median sales price as proof of market trouble. But in many markets, inventories started from all-time lows, and sales often slow down in the fall and winter months. In California, sales remained strong in September, but the median price fell, says Robert Kleinhenz, deputy chief economist for the California Association of Realtors. That's a common pattern—the last few years just haven't been common. “It's done that for 20 of the last 26 years,” he says.
And though the media are quick to report big shifts in monthly housing data, trends over several months are more reliable. “Before anyone declares that the housing market is crashing, I would like to see two or three months of data moving in the same direction,” Nothaft says.
Finally, some reports might make it seem that every housing market is faltering, but business continues to boom in many parts of the country. “We're not seeing any slowdown, certainly in 2005, and from builders I've talked to, we don't anticipate any slowdown in 2006,” says Mark Baldwin, executive vice president of the HBA of Charlotte, N.C. “Every little hitch in rates will slow things down a little bit, but even if it were to slow down 5 percent, [2006] would be a great year.”
SOURCE: U.S. CENSUS BUREAU
SOURCE: FREDDIE MAC
SOURCE: UNIVERSITY OF MICHIGAN SURVEYS OF CONSUMERS
SOURCE: U.S. CENSUS BUREAU
SOURCES: NATIONAL ASSOCIATION OF REALTORS AND U.S. CENSUS BUREAU
SOURCE: U.S. CENSUS BUREAU
SOURCE: U.S. CENSUS BUREAU
SOURCE: NAHB
SOURCE: RANDOM LENGTHS
MULTIFAMILY MALAISE:
Amid reports that the housing market has peaked, October housing starts were down 2.3 percent compared with October 2004. They were dragged down by multifamily starts, off last October's pace by 21.7 percent.
TRUE TALE:
Economists' forecasts of rising interest rates are finally being realized. More buyers will opt for fixed rate loans as the spread between those and adjustable rate mortgages narrows.
SINKING LOWER:
The index of consumer sentiment fell to its lowest level in 13 years in October. More than a third of respondents said it's a bad time to buy a home.
SOUTHERN COMFORT:
The South was the only region to hold nearly stable in October. The South is also the only region to post positive starts growth year over year.
BY THE BOOK:
Both new- and existing-home prices retreated in September, typical for autumn sales. New-home prices have cooled more than existing prices, though.
ON TRACK:
New-home sales were down slightly compared with September 2004, but they remain on pace to set another annual record. Inventory rose to 4.9 months' supply.
SINGLE-FAMILY STRENGTH:
Though down for the month, single-family permits were up 4.9% over October 2004. Multifamily permits are down sharply this year.
FALL BACK:
Builders' confidence waned in November, dampened by lower consumer confidence and rising interest rates. Builders felt worse about traffic and sales.
MORE NORMAL:
Prices for both framing lumber and panels retreated, almost to their pre-Katrina levels, but pricing patterns remain bumpy.