At the current existing-home sales rate of 5.04 million units a year, it would take a full 10.5 months to sell the 4.4 million existing homes now on the market, according to data released by the National Association of Realtors (NAR) on Oct. 24. The supply of existing single-family homes was at 10.2 months in September—the highest since February, 1988. Compare that with the height of the housing boom in January, 2005, when it reached a record low 3.6 months.
This supply of houses is going to continue to put downward pressure on prices. How long will it take for sellers to reduce their prices low enough to clear the existing stock of unsold houses? Some sellers will decide to wait out the downturn and just hold on. Others will be forced by circumstances to sell. Adjustable rate mortgage interest increases will push more homes into default next year. So in some markets waiting to sell might turn into a bad idea.
The continued rise in oil prices is also reducing the money available for housing. Most obviously, additional money spent on gasoline is money not available to spend on housing. But also the rise in gasoline prices reduces optimism and makes people more reluctant to make major purchases.
Many analysts have pointed to easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy macroeconomic analysis, the authors conclude that the availability of new mortgage options accounted for 56% to 70% of the decade-long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31%. Although the paper cites lowered downpayment requirements as the biggest factor in raising ownership, co-author Carlos Garriga of the St. Louis Fed says a forthcoming paper will attribute more of the effect to "teaser" loans with low introductory payments that appeal to young and lower-income buyers.
I'm more worried about the rising price of oil than by the housing glut. The housing market will eventually correct. But oil's high cost could be a lasting change in the energy market.
|Share |||By Randall Parker at 2007 October 30 10:46 PM Economics Housing|