Friday, February 16, 2007

Slumping prices and climbing sales

A report issued Thursday, February 15, 2007, indicated a 2.7% slump in home prices in the fourth quarter of 2006 as compared to a year earlier. This marks a record year-over-year price drop in the housing market and comes after a 1.0% drop in the third quarter. This trend is the natural consequence of the current market situation and it is accelerating. I believe prices need to drop even more before the Real Estate business regains its balance, but these numbers already look like good news for consumers and economists – not for agents and home builders though.

Meanwhile, the National Association of Home Builders published its Housing Market index, indicating a 5% rise in builders’ confidence in market conditions since January, when it was 35%. Economists had predicted the index to remain unchanged, but it has reached its highest reading since it was 42 in June 2006. In September, it dropped to 30, a 15-year low. Nevertheless, if the Index remains below 50, this means that the number of builders who view the market as poor is higher than the number of builders who’re satisfied with the current situation.

Well, the index reflects housing dynamics as lower energy prices and mortgage rates, combined with growing employment and household income have caused an increased buying demand. Builders have been cutting prices and offering sales incentives for months, and these measures are finally yielding results, even though the loss incurred by slumping prices is often quite substantial. If unsold inventory is reduced significantly, this will help stabilize both the market and prices. For now, however, the environment is still challenging for all Real Estate and mortgage businesses.

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