Is the Glass Half Empty?
September 27, 2007 | Leave a Comment
I have the good fortune, or the misfortune, of having a CNBC business news feed at my desk. So whenever I’m in the office, I can listen to commentary on the markets at most times during the business day. And in the car, XM Satellite Radio also features CNBC on one if its channels. Useful, or obsessive? For me, very useful, especially since housing statistics and news are routinely reported, and commented upon, almost daily on CNBC. The National Association of Realtors (NAR) reports frequently on existing home sales data; the National Association of Home Builders (NAHB) provides data on housing starts and new home sales. Similar reports from the U.S. Commerce Department, the mortgage industry, and timely reports about Federal Reserve Board action all contribute to our ability to mind the pulse of the housing market.
Today’s headlines were bleak:
- KB Home Swings to Third Quarter Loss, Sees Worsening Market in 2008
- New Home Sales Tumble to 7-Year Low
- Foxtons May File for Bankruptcy
“We expect housing industry conditions to continue to worsen through the end of the year and into 2008,” according to Jeffrey Metzger, CEO of KB Home.
Sales of new homes dropped by 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000 units. That was the lowest level since June 2000.
Foxtons, one of our nation’s large discount real estate brokers, announced that it was “releasing” 350 of its 380 employees, and “may be filing for bankruptcy protection in order to close the business in an orderly fashion.”
(I feel sympathy for the employees, who were salary-based agents in this low-cost model. More so, I’m concerned about the chaos that faces Foxtons’ current customers, reportedly numbering 4400 sellers on the East Coast. The moral of the story: hire an agent that has been around a long time, through good and bad markets. Christe and I have been in business for nearly twenty years, including the down market of the early ’90’s. And we’ll be here for a long time to come!)
On the brighter side: Interest rates continue to fall from their panic peak of August. The LIBOR index, which is the basis of many adjustable mortgage rate mortgages, has dropped to nearly 5.1%, from nearly 6% when the panic hit last month.
National housing trends are not NECESSARILY the same as those in Orange County. Have you heard the expression, “all politics is local”? Well, the same principal applies to real estate. Some regions will fare better than others; in Seattle, for instance, prices have actually been climbing selectively this summer.
Is O.C. immune from a national decline? Of course not. To be sure, the trend is definitely DOWN right now. Inventory in some price ranges, and in some neighborhoods, is high. In others, inventory is lower. So even within a local market such as ours in O.C., there will be gradients of supply and demand across the spectrum of price and location which will ultimately determine sales price.