Jon
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Joined: 13 Apr 2005
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| Homebuilder optimism cont falls in the face of harsh reality |
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Remember back to the spring and summer when the homebuilder CEO’s would come on to the financial stations to discuss latest earnings and business in general? The optimism was gushing; demographics indicated another 10 years of boom and interest rates, well, don’t even worry about those until they hit 8%.
Ten years have not passed by, not even 10 months. Since June, however, homebuilder sentiment has dropped 21%, losing another chunk in December, falling to 57 from 61 in November. It has not taken long for that bubbly optimism to go flat.
There are numbers to back it up, more hitting Monday. Months on the market rose to 4.5 from 4.3 over the past month. That may not seem like much, but in home sales that is a big jump. Further projected prices are supposed to fall from an 11.2% gain in 2005 to 4.9% in 2006 and then 1.6% in 2007. Believing these projections is done at one’s own peril, but expectations are for a decline; not a precipitous decline, but a decline after years of gain.
Housing starts and permits are out Tuesday morning, more data for the housing market to chew on. It has finally become clear to the majority that the housing market is declining, and now the game for many is guessing how far and fast it will decline. The price projections indicate an orderly decline, but those can be mirrored against predictions of a sharp decline from ‘bubble’ proportions. That of course presupposes there is a bubble.
As we have said all along, there are areas that have overheated, but it is really the same as it always has been: some areas typically overheat (California, New York, Florida), new areas are cropping up that will do the same (Phoenix), while the majority of the markets rise and fall in more or less orderly fashion. Thus we anticipate harder falls in the typical areas and more orderly declines in the more stable markets.
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