Wednesday, May 26, 2004

Housing Watch: Families being Outbid

Nathan Newman has a recent posting about how the higher prices in homes are forcing families out of the home-buyer's market even as nominal home-ownership rises.

This article cites a new report by the Center for Housing Policy that documents that all the media hype about rising home ownership disguises the fact that home ownership for families with kids is dropping, especially those in poorer families...

Essentially, this means that the rise in housing prices is benefitting richer folks, while leaving many poor families further behind.

Yet the Bush administration is advocating further cutting federal funds for rent subsidies for working families left behind in this housing cost crunch.

Meanwhile a friend of me sent me this article by CNN indicating that housing sales slumped in April right in line with what the oldman predicted would likely be the beginning of the end for the peak in the housing bubble. The bad news? It ain't over till the fat lady sings:

NEW YORK (CNN/Money) - New home sales posted the biggest monthly drop in 10 years in April, coming in much weaker than economists had expected, as rising mortgage rates started biting into the nation's housing market.

The Commerce Department said new home sales fell to an annual rate of 1.09 million last month, down 11.8 percent from the revised record high rate of nearly 1.24 million in March, when mortgage rates were near a 40-year low.

Economists surveyed by had forecast that sales would fall to an annual rate of about 1.2 million.

"This is a sign that the housing market is not exempt from the laws of gravity," said Anthony Chan, chief economist for Banc One Investment Advisors.

"Several times in the last year we've seen mortgage rates creeping up and housing hasn't responded. Now the Federal Reserve has put some credibility behind the increase in rates. I think it set a general tone for the housing market that it'll be a lot more muted."

He projected new home sales for the year will be little changed or down slightly.

A separate report Tuesday showed that existing home sales -- by far the lion's share of the nation's housing market -- rose to near record levels last month, bucking forecasts of a modest decline.

But the new home sales are closely watched by economists because they have a far greater economic impact. They create jobs in construction, and new home buyers are likely to spend more money on new appliances and furnishings than existing home purchasers.

Of course no one can tell exactly when the top of a market will be reached, but this is more evidence of a necessary divergence between supply and demand that is necessary for a later correction. It's not the end, but certainly it looks more and more likely that it's the beginning of the end.


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