Monday, January 28, 2008

Keep Hope Alive


The residential-real-estate industry has placed a lot of hope in the president’s proposal to reduce mortgage interest rates on jumbo loans by raising the dollar limits on the mortgages that Fannie Mae and Freddie Mac may acquire.

In its January 24 press release ( the National Association of Realtors (NAR) said:

“NAR projects the higher loan limit would increase annual home sales by nearly 350,000, reduce foreclosures by 140,000 to 210,000, and increase economic activity by $44 billion.”

NAR issued that press release to announce:

Existing-home sales – including single-family, townhomes, condominiums and co-ops – slipped 2.2 percent to a seasonally adjusted annual rate1 of 4.89 million units in December from a pace of 5.00 million in November, and are 22.0 percent below the 6.27 million-unit level in December 2006.”

Update the following chart with these numbers. Existing home sales have fallen by about two million, or around 30%. NAR’s estimated 350,000-sales improvement - that the rescue package could initiate - would help. But by how much and for how long would it halt the slide?

Existing-Home Sales

(Click on chart to enlarge)

Recessions shaded

Today the Census Bureau released ( ) its estimate for December 2007 new-home sales:

“Sales of new one-family houses in December 2007 were at a seasonally adjusted annual rate of 604,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.”

Examine the chart below. If you update the data in your minds eye, you can see the scope of this unfolding debacle. The decline from 1.4 million at its peak to 604,000 today is almost a 60% drop – about twice as severe as the drop in existing-home sales. Should the decline continue it will be the worst since WWII.

New-Home Sales

(Click on chart to enlarge)

Recessions shaded

Finally, you can view the impact of all this on the residential-construction industry. As the Census Bureau said ( in its January 17 press release:

“Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,006,000. This is 14.2 percent (±8.3%) below the revised November estimate of 1,173,000 and is 38.2 percent (±4.9%) below the revised December 2006 rate of 1,629,000.”

Housing starts have also fallen by about 60%, about the same as the decline in new-home sales. The last chart makes clear that, should housing starts dip much below one million, this will be the industry’s worst post-WWII slump.

Housing Starts

(Click on chart to enlarge)

Recessions shaded

Keep hope alive………..

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2008 Michael B. Lehmann

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