Uncertainty Looms (Along with Doubt) for 2008 Residential Market
- Sep 13, 2007
Perhaps you’ve noticed recently that many residential industry insiders have started saying that they’re expecting the current housing slump — which already seems like it’s been going on forever — to last through a good chunk of 2008.
Not long ago, many of those same sources were expressing hope the crisis would start a turnaround later this year — and true, it’s September, but there’s still time (and room) for improvement, right?
Read the news — and the numbers — and you might think otherwise.
There are quite a few reasons why the housing industry is now looking toward 2008 for things to improve, including:
- Home sales are still down. On Tuesday, the National Association of Realtors officially forecast a 24 percent decline in new home sales this year and anticipated sales would fall from 801,000 in 2007 to 741,000 next year, according to the Associated Press. That would be the seventh consecutive month of lowered expectations from the NAR.
And, although the NAR’s last monthly forecast said home prices were expected to rebound with a year-to-year rise in early 2008, on Tuesday it said the existing home market would see flat prices in the first quarter of 2008, according to CNNMoney.com.
- Businesses are still attributing profit losses to the residential market. And they’re showing little faith the situation will improve. Take, for example, DuPont, which (among other things) manufactures residential and commercial construction materials. In late July, the company told investors it expects the housing slump that had damaged its second-quarter results to continue for several more months, according to Reuters.
The company was "not assuming anything improving in North American housing until sometime well into 2008," Chief Executive Charles Holliday said.
- The financial market is feeling the burn. Residential sector stocks set new annual lows this week, according to Dow Jones.
Net orders for homes fell 21 percent in July 2006, more even than the 10 percent decline in new home sales reported by the Commerce Department, Majestic Research analyst John Tomlinson reported his data showed. Tomlinson also said year-over-year net orders have angled down since July 2006, Dow Jones reported.
The home-builder stock decline has also negatively affected some well-known large mutual fund managers — including Legg Mason’s Bill Miller, Harris Associates’ Bill Nygren and Fidelity Investments’ Tim Cohen — who had bought the stocks, hoping they had hit bottom, according to Reuters.
- The world is watching — warily. The Organisation of Economic Co-Operation and Development (OECD) said it expected the U.S. housing crisis would last longer than previously expected on Sept. 5 when giving gave its spring/autumn mid-point projections.
OECD also expressed uncertainty when about its predictions for the world’s 30 richest countries because the housing crisis’ effect may not yet be fully known.
- Everyone is still wondering if the Fed will lower rates. And now, we come to the perhaps most discussed reason people are looking toward next year for residential market improvement. Ah, the Fed.
For months, the Fed has kept its federal funds rate — the overnight bank lending rate that affects credit card, home equity and other loan rates –steady at 5.25 percent, expressing more concern about inflation.
However, the Fed noted in August that "financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing," CNNMoney.com reported.
And, following suit, for months industry analysts have been buzzing that the Fed will lower rates before we hit 2008. Lately, there’s been significant buzz that the Fed will lower its benchmark interest rate at its Sept. 18 meeting next week.
If the Fed steps in, things won’t get better overnight — and it’s not a magical solution. Still, lowering the interest rate would be huge.
A lower interest rate can positively affect credit rates; holding steady could potentially cause more credit problems than the U.S. is currently experiencing. Increased credit issues are eventually going to vastly hurt U.S. spending, investing, business growth and more — putting our entire economy at risk.
Surely the Fed is mulling over all those concerns as it prepares to meet — and possibly lower the interest rate — next Tuesday. Will it happen? We’ll be watching.