Real Estate Cooling Down?

By Johns Wu on Oct 26, 2006

All leading indicators are now confirming that most US home markets are in bear mode with anxious sellers and limited buyers. The Donald Trump Index is also not telling a different story. Donald Trump Index is mostly a psychological measure, which is based on popularity of real-estate-oriented seminars headlined by the property mogul and TV star.

According to the Learning Annex, a New York-based education company, the Real
Estate Wealth Expo, featuring Trump and 70 other money mavens, attracted more than 60,000 participants in 2005, when the home market was at its peak. The Expo charged as much as $499 per person. Recent ads for the event offered a price as low as $99 for similar seminars that are scheduled in cities such as Boston, Los Angeles, New York, Chicago and Toronto. Is there any connection between the 80% drop in the Trump Index and the measurable decline in the market?

It is evident now that there are more home sellers than buyers. The data collected by
National Association of Realtors says that there is more than a 7 month-plus supply of
unsold houses. Higher mortgage rates combined with large, static inventory depresses existing home sales, which fell 0.5% in August to the lowest level since 2004. The housing starts in August were down 20% from a year ago. With the highest supply of homes in 13 years, the housing group forecasts a 9% drop in existing-home sales for 2006 and a 17% drop in new-home purchases.

The total number of homes available on the market is out of balance with the demand. If we assume that the US population of 300 million is growing at a rate of 1% per year, and there are about 2.6 people per household, the base demand for housing is about 1.15 million units. The new-home construction rate was 1.7 million in August, and there are roughly 4 million unsold homes in the market today. Unless speculators and investors absorb the surplus, the supply may exceed the demand by 4.5 million homes.

Homebuilders are now offering teaser incentives to buyers, such as free kitchen and bath upgrades. That sounds tempting if you are exploring for a new home, but see how serious they are to lock sales by asking them to cut their selling prices.

This entry was posted on Thursday, October 26th, 2006 at 7:59 pm and is filed under Market News. You can skip to the end and leave a response. Pinging is currently not allowed.

3 Responses to “Real Estate Cooling Down?”

By Technicator.NET on October 26th, 2006 at 10:56 pm

They’ve always offered incentives. It’s common practice for homebuilders. Also, i think the housing market isn’t crashing. If you go to http://www.zillow.com and observe the 10 yr housing prices, it is just under consolidation. Like any stock setup, after consolidating it can go much higher. Take a look at it. The recent price correction was a guaranteed thing after the huge 100% run up in prices (200-300% in California). Therefore, it’s normal and the way prices are coming back down isn’t in a crashing fashion so it’s not likely a real estate problem in the long run.

By Peter on October 30th, 2006 at 12:49 am

Personally, I believe the housing price will stay flat for a couple years. With average yearly inflation between 2~3%, a flat housing price is the same as a discount as wage is suppose to increase at a rate that is comparable to inflation. The flat housing price might be the best case scenario for a “soft landing” with minimum impact to current econonmy while still obtain a housing price correction.

By Mr. Finance Blog on November 2nd, 2006 at 5:08 pm

The biggest indication for a slowdown in the housing market is something more more hard than a soft figure about how much RE agent hopefuls are paying for Trump’s pearls of wisdom. Much more importantly, a glut of supply has been building up which, if left unchecked, will lead to price slashing as builders and even resellers cut prices to offload old inventory.

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