Home Price and Demand Forecast
Average home prices are expected to stay flat through about the middle of next year. By then, builders will have curtailed supply enough to allow the current overhang of about 300,000 houses nationwide to start to be absorbed by the market.
Still, some analysts predict, sellers will face a dismal spring next year, usually the best selling season.
Housing will play a big part in slowing job growth. Next year, net employment growth will slacken to an average of 117,000 a month. Home building and related fields…mortgage finance, furnishings, design, landscaping, etc…have made up 25% of overall job growth since 2002.
The housing cooldown will have a broader reach than was expected just a few months ago. Then, it seemed that the bulk of the downturn would be restricted to former boom areas, located mainly on the coasts. But sluggishness in some industries, especially the auto industry, is taking its toll on some inland areas, notably Indiana, Michigan, Ohio and parts of Pennsylvania and New York.
By late 2007, homeownership is expected to resume its historical role as a relatively secure store of value that also provides shelter.
August Home Sales Rising
Sales of new homes, after falling for three months, rose in August. But the gain was expected to be temporary as the battered housing industry struggles with a near-record level of unsold homes.
The Commerce Department reported that home sales increased by 4.1 percent last month, the best showing since an 8 percent increase last March.
But even with the increase, the median price of a new home fell to $237,000, a drop of 1.3 percent from August 2005. It was the first year-over-year price decline since late 2003.
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Bad Lesson For Real Estate Flippers
Investing in real estate looked so sexy. Like the tech-stock bubble that turned college kids and housewives into day traders, the real estate boom turned insurance brokers, doctors and bicycle mechanics into real estate flippers, who would buy and then quickly sell homes for easy profits.
Now those profits are shrinking fast. Nearly one in five flippers who sold from April to June actually lost money on the deal, the highest level in 2½ years, according to HomeSmartReports.com, which has released a report on flipping activity in 147 metro areas.
The vanishing act of speculators is accelerating the decline in home sales this year. That's making life hard for home sellers but giving buyers a bonanza of choices. It's also a stark reminder of the cyclical nature of real estate.
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Wholesale Inflation Rate Drop
The construction industry fell to a three-year low last month and a measure of wholesale price inflation dropped, boosting speculation the Federal Reserve is finished raising interest rates through the end of this year and possibly beyond.
Housing starts plunged 6 percent in August to an annual rate of 1.665 million, the Commerce Department said today. It was a steeper slide than economists forecasts.
Prices paid to U.S. producers excluding food and energy declined 0.4 percent from July, the Labor Department said, marking the first back-to-back monthly drop since the end of 2002.
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Home Prices: 1st Drop In 11 Years
According to an industry group, home sales slowed and a key measure of prices fell for the first time in 11 years last month, spurred by the biggest glut of new homes on the market in more than a decade.
The National Association of Realtors report on existing home sales showed that the median home price in August was $225,000, down 1.7 percent from a year earlier.
It was the first year-over-year decline in median prices since April 1995, when that measure slipped only 0.1 percent. And it was the biggest year-over-year drop since the record 2.1 percent decline recorded in November 1990, when the nation was in recession.
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