Home market decline deepening - Prepare for the worst

June 24, 2006

New home sales for 2006 are expected to be down 13% from 2005, according to the NAHB, while sales of resale home will be off by 6.8%, according to the NAR. As of April, there were 3.4 million resale homes for sale, 37% more than last year. The condo/co-op market inventory is much worse, with 62% more condos on the market than last year. However, slower sales haven’t affected prices...yet. The OFHEO House Price Index shows that Q1 2006 housing prices were 12.4% higher than the first quarter of 2005. This is the lowest increase since 2004, and is lower than the fourth quarter of 2005. This compared to the CPI rise in overall goods and services of 4.2%

What It Means:
The reason for the housing glut is that many homeowners got greedy, and waited too long to list their homes last year, hoping prices would continue to go up. Now that sales are slowing, they are panicking and putting their homes on the market all at once. Homeowners have been reluctant to lower prices so far, but as they stay on the market, they will soon have no choice. As interest rates continue to rise, so will the inventory of unsold homes.

Action Steps:
If you can, wait a year or more before putting your home on the market, unless you are willing to price it to sell within 30 days. Definitely consult with a good realtor with experience in the last downturn to help you with the sale price. If you are buying a home, wait and see if prices go down further later on this year...as they usually do in this type of a downturn.

Source: National Association of Homebuilders website, National Association of Realtors website, Office of Federal Housing Enterprise Oversite website