Large Price Declines Expected in Fall and Winter

It is now the end of the beginning of the housing bust, in most bubble markets across the United States. In most bubble markets prices have fallen between 6 - 20% in real dollars from peak prices. In many bubble markets peak real dollar prices were reached in late 2005 or early 2006. With the coming of fall and winter, large inventory, slow sales, tightened lending standards coupled with increased negative buyer and seller sentiments will lead to large price declines over the next 6 months.

Real dollar prices will likely decline between 6% and 13% over the course of the next 6 months in most bubble markets.

Large Inventory

Inventory is significantly higher in most bubble markets then last time this year. According to Housing Tracker as of 10/01/2007:

• Miami: 24.3%
• San Diego: 3.6%
• Washington, DC: 9.1%
• San Francisco: 21.3%
• Baltimore: 21%
• Orange County: 10.9%
• Portland: 32.2%

According to the National Association of Realtors, "inventories of unsold existing homes on the market rose by 0.4% to 4.58 million, representing a 10-month supply at the August sales rate, the Realtors said. For single-family homes alone, the inventory represents a 9.8-month supply, the most since May 1989. (Market Watch Sep 25, 2007)"


Sales Declining

According to the National Association of Realtors the September 2007 Existing Home Sales Pending Index broke the previous low of 89.8 in September 2001. September 2001, was that month of a major terrorist attack (9/11). Home sales have fallen tremendously from the peak of the housing bubble.

According to insides information via Housing Doom, who is busy reporting the shocking numbers that sales are declining precipitously in Phoenix.

As of this morning we had 3,176 sales for September. Obviously, there will be no official closings on the weekend but there may be a few more that trickle in because a few agents entered the 29-30th as COE. This will leave Phoenix with a 18 month supply of homes (57,441 active). In addition, September has seen one of the largest monthly drops in value on a cost/sf basis.

It believe the rush to close deals in August sucked a lot of sales from September.

In the Seattle area, "sales are lagging. Offers were accepted last month on 1,541 King County houses — a 32 percent drop from the numbers in September 2006 (Seattle Times, Oct 6, 2007)"


Lending Standard Tightened Up

Lending standards have tightened up significantly in the last 3 months. Richard Syron, chief executive of Freddie Mac said "the credit squeeze had left some parts of the housing market "literally frozen", which was a "substantial depressive to the overall economy" (MSNBC Sept 28, 2007).



ARMs are Adjusting / Foreclosures Are Rising

Nearly a quarter of a million foreclosure filings were reported in August, up 115% from a year ago and up 36% from July. Each home in foreclosure can have multiple filings as it moves from default status to bank repossession...."The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable-rate loans are beginning to reset," said James Saccacio, chief executive for RealtyTrac. (Marketwatch September 18th)

Source: Bank Of America

Growing Negative Phsycology

In general, Joe Six Pack (aka JOE6PAK, J6P), the ordinary person, have woken up to the reality that most bubble markets are undergoing price declines.



Seasonal Changes

Usually, prices fall a few percentage points in the fall and winter months as it is off peak season. This year due to the declining housing market the seasonal influences should have a greater downward pull on home prices.

Conclusion

With the coming of fall and winter, large inventory, slow sales, tightened lending standards coupled with increased negative buyer and seller sentiments will lead to large price declines over the next 6 months. Real dollar prices will likely decline between 6% and 13% over the course of the next 6 months in most bubble markets. Like this year's spring, spring 2008 will not stop or reverse declining housing markets.