Home prices drop 10%
http://news.yahoo.com/s/ap/20061026/ap_on_bi_go_ec_fi/economy_11
Home prices for new homes dropped 9.7%, according to the Commerce dept.
This should not be a surprise – anyone reading the news knows that the over-supply is going to drop prices, and homebuilders have the flexibility to respond faster than homeowners seeking to sell.
First, this is just the start. Home sales is a lagging metric: September data represents July sales (the sale must go through escrow and finally get recorded). That means the next few months will show the same level of drop. The anecdotal information has finally hit the data.
Second, re-sale homes are next. Homebuyers don’t distinguish between new and re-sale homes. They will expect to see 10% price drops and will try to get 15%. The data also suggests a lag between new and re-sale homes: homebuilders can drop prices easily and are smart enough to do so now.
Third, more price drops. The massive over-supply will require more drastic price drops. This will continue to pressure the re-sale market. RE agents are getting hungry and consider the sellers unwillingness to drop prices as the problem. Buyers and RE Agent sellers will flash this new data in front of sellers. Resistance will come in the form of comps: comps will take longer to fall. In essence, re-sale price drops will lag 6 months behind new home sales.
The truth is that home prices are too high, but a slight drop won't bring in buyers.
Another reason for the lag in re-sale homes is that there are different pressures on the re-sale and new home markets. Homebuilders are debt heavy and responsible to Wall Street: they have to sell homes within months of completion. Homeowners typically can choose whether or not to sell: so they can resist short term price fluctuations. However, this is not a typical market. Most homebuyers from the last few years are either speculators (multiple homes) or primary homeowners who need to sell because of financial stress (aka ARM re-setting).
The stress on homeowners will increase as prices drop because banks/appraisers will not fund 100% of the loan.
Home prices for new homes dropped 9.7%, according to the Commerce dept.
This should not be a surprise – anyone reading the news knows that the over-supply is going to drop prices, and homebuilders have the flexibility to respond faster than homeowners seeking to sell.
First, this is just the start. Home sales is a lagging metric: September data represents July sales (the sale must go through escrow and finally get recorded). That means the next few months will show the same level of drop. The anecdotal information has finally hit the data.
Second, re-sale homes are next. Homebuyers don’t distinguish between new and re-sale homes. They will expect to see 10% price drops and will try to get 15%. The data also suggests a lag between new and re-sale homes: homebuilders can drop prices easily and are smart enough to do so now.
Third, more price drops. The massive over-supply will require more drastic price drops. This will continue to pressure the re-sale market. RE agents are getting hungry and consider the sellers unwillingness to drop prices as the problem. Buyers and RE Agent sellers will flash this new data in front of sellers. Resistance will come in the form of comps: comps will take longer to fall. In essence, re-sale price drops will lag 6 months behind new home sales.
The truth is that home prices are too high, but a slight drop won't bring in buyers.
Another reason for the lag in re-sale homes is that there are different pressures on the re-sale and new home markets. Homebuilders are debt heavy and responsible to Wall Street: they have to sell homes within months of completion. Homeowners typically can choose whether or not to sell: so they can resist short term price fluctuations. However, this is not a typical market. Most homebuyers from the last few years are either speculators (multiple homes) or primary homeowners who need to sell because of financial stress (aka ARM re-setting).
The stress on homeowners will increase as prices drop because banks/appraisers will not fund 100% of the loan.
posted by Andrew at
10:09 AM
2 Comments:
My greatest angel,
1) I heard from the radio, commentator mentioned that Greenspan said something today regarding the housing market. He said that the housing market would have a soft landing. I guess that may be the reason the housing stock going up today. I did NOT confirm that news. Have you heard about that ?
2) regarding uctt, is it still a good buy ?
thx
If Greenspan is correct, this would be the 1st soft landing in recorded history.
Perhaps he thinks that the Fed will drop interest rates again to spur home buying. Reality check: no amount of interest rate drop will re-spark the home prices.
This is now dangerous territory. The banks and investment companies like Goldman Sachs have a lot of money tied up with homebuilders. They will say and do anything to buy time for their clients to dump those overpriced houses.
Pay attention to facts, not spin meisters. The 10% drop in price is not an anomaly. It's called a hard landing.
-------------
UCTT: buy more or wait?
I would buy more and average up. My thinking is twofold
1. Incredibly cheap - they grew 54% in one quarter, but the P/E is 20. That's a sign of an underfollowed stock that could take off when the big boys take notice. HANS did that.
2. Institutions are buying in. I see a LOT of momentum. Incredible buying pressure the last 5 days. MACD is rising still and Volume today was 8X normal.
But it has had a huge ride in such a short time: up 60% in 3 months.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home