Grim News Likely from June Home Sales

RISMEDIA, July 24, 2007–(MCT)–This pain in the residential real estate market is going to persist. The question is, for how long?

And more grim news is likely this week.

Local, state and national Realtors groups are scheduled to report June’s sales and price results, and DataQuick Information Systems should have second-quarter foreclosure activity numbers.

The entrenched trend will prevail.

Sales will be well under where they were a year ago, prices right about where they were a year ago, and foreclosure activity way above where it was a year ago.

In this case, 1 plus 1 plus 1 equals 2 — as in the way sales, prices and foreclosure activity are misbehaving adds up to two basic scenarios for this market.

On the dire side are those who maintain the sky is falling, the bubble is bursting and we’re in for severe price reductions.

On the less bearish side are those who believe people who would have probably bought by now did so a couple of years ago because of lower interest rates and loan packages and underwriting standards that made buying a home easy, even though there might be some financial risk.

“It was kind of the perfect storm for buyers. They got active and they got in the market and that stole buying activity from the future. And the future they were stealing from is today,” said John Karevoll, an analyst at DataQuick Information Systems.

Now credit standards have tightened, but prices are still high so buyers looking for their first house are having trouble getting in the market.

There is not much trade-up room, either. For example, homes in my neighborhood are selling in the $600,000 range and new homes being built are priced over $700,000.
What’s the point of cashing out and buying a house a lot like the one you are living in?
Last week, the Los Angeles County Economic Development Corp. issued its midyear forecast. It doesn’t see a fire sale in the housing market on the horizon.

The LAEDC said growth in California this year will slow to 1.6 percent from 1.9 percent in 2006.

“Still, a recession should be avoided. The most notable pain in 2007 will be felt in industries closely tied to housing, especially the new home building and resale housing sectors,” it said.

It also said the big question is, when will the state’s housing market rebound and what type of a recovery will it be.

The market should start to show more life by early 2009, but the recovery won’t be vigorous.

It’s also rare for housing prices to fall while the economy is growing.

Nevertheless, there is still lots of chatter about the subprime market meltdown and rising foreclosure activity.

On Thursday, Federal Reserve Chairman Ben Bernanke, in his second consecutive day talking with the Senate Banking Committee, said there are growing problems for borrowers with spotty credit histories who hold higher-risk subprime mortgages.
These problems will get worse before they get better, he said.

And the situation has resulted in about three dozen lenders filing for bankruptcy.

“A lot of the subprime mortgage paper is not, you know, as good as was thought originally,” Bernanke told the panel, according to the Associated Press. And he predicted “significant financial losses” associated with delinquencies on those mortgages. He also said the Fed is looking at ways to help consumers and prevent the problem from happening again.

And he repeated the Fed’s belief that the economy will grow gradually this year, restrained by the housing slump.

And that is going to continue for some time, the Fed chief said.