2006 September 06 Wednesday
US Housing Market Boom Ending

The party is over.

Home prices were 10 percent higher in the three months ended June 30, compared with the corresponding period last year. The quarterly appreciation rate of 1.17 percent, however, was the slowest since the fourth quarter of 1999, according to the analysis by the Office of Federal Housing Enterprise Oversight.

In contrast, in the second quarter of last year -- which many analysts describe as the height of the recent boom -- the quarterly rate was 3.65 percent. The change in the rate between those two quarters was the sharpest decline since the agency began tracking the data in 1975.

The housing boom replaced the dot com boom. What's going to be the next boom?

The full text of the report is online (PDF format).

WASHINGTON, D.C. – U.S. home prices continued to rise in the second quarter of this year but the rate of increase fell sharply. Home prices were 10.06 percent higher in the second quarter of 2006 than they were one year earlier. Appreciation for the most recent quarter was 1.17 percent, or an annualized rate of 4.68 percent. The quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999. The decline in the quarterly rate over the past year is the sharpest since the beginning of OFHEO’s House Price Index (HPI) in 1975. The figures were released today by OFHEO Director James B. Lockhart, as part of the HPI, a quarterly report analyzing housing price appreciation trends.

“These data are a strong indication that the housing market is cooling in a very significant way,” said Lockhart. “Indeed, the deceleration appears in almost every region of the country.”

Possible causes of the decrease in appreciation rates include higher interest rates, a drop in speculative activity, and rising inventories of homes. “The very high appreciation rates we’ve seen in recent years spurred increased construction,” said OFHEO Chief Economist Patrick Lawler. “That coupled with slower sales has led to higher inventories and these inventories will continue to constrain future appreciation rates,” Lawler said.

House prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. While house prices rose 10.06 percent, prices of other goods and services rose only 4.41 percent. The pace of house price appreciation in the most recent quarter more closely resembles the non-housing inflation rate.

Will housing price rises drop below the overall inflation rate?

Will the retirement of the baby boomers make the housing bust long lasting?

The downturn in housing is overlapping with the retirement of the baby boom generation, which starts officially in 2008, when the first of 77 million boomers become eligible for Social Security. Most of them are homeowners, and many of them will presumably want to sell their homes, extracting some cash for retirement in the process.

Some analysts think both the stock and housing markets will go bearish when the huge post WWII cohort passes into retirement.

Share |      By Randall Parker at 2006 September 06 09:59 PM  Economics Housing


Comments
drakis said at September 7, 2006 2:50 PM:

As the saying goes, America catches a cold, and Australia sneezes. Reading this article only reminds me of what I'm reading in the daily newspaper about what's happening in Australia.

nzconservative said at September 7, 2006 3:32 PM:

It seems like the US is going to be hit by a series of negative economic factors in the next decade - the retirement of baby boomers - straining social services and pushing dowm property prices, peak oil, and unsustainable public and private debt. In New Zealand we have a growing problem with student debt and I suspect many other western countries do as well.

About the only bright side I can see is that western farmers will have a massive new export market in China.

nzconservative said at September 7, 2006 3:32 PM:

It seems like the US is going to be hit by a series of negative economic factors in the next decade - the retirement of baby boomers - straining social services and pushing dowm property prices, peak oil, and unsustainable public and private debt. In New Zealand we have a growing problem with student debt and I suspect many other western countries do as well.

About the only bright side I can see is that western farmers will have a massive new export market in China.

Jim said at September 7, 2006 5:22 PM:

This is not surprising; the middleclass gets screwed and shrinks. Foreclosures will be accelerated in the 200-300K range and hurt the real estate market big time. Does foreign money save the day? Does a new national movement take hold and promote US protectionism? I don't buy the globalization argument as being good for the US. Our lifestyles will be on the downslide, except for the rich.


Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

      
 
Web parapundit.com
Go Read More Posts On ParaPundit
Site Traffic Info
The contents of this site are copyright ©