Thursday, October 19, 2006

Look Out Below!

by Tom Bozzo

This makes me glad to have no plans to move for the foreseeable future. Dane County residential real estate sales in September were off 53 percent year over year, which Jeff Richgels of the Cap Times rightly describes as "stunning" (see update below, though), and still off 29 percent over September 2004. The upshot is that at the September sales pace, there's a stunning 12+ months' inventory of houses and condos on the market. This compares with 6 months or so that's considered normal. Obviously, this would tend to put a lot more pressure on prices than has been seen so far.

The supply of new listings is down slightly — from signs such as a dearth of higher-priced FSBO listings, I suspect people who might have been inclined to try to find out just how crazy the market was six months or so ago are sitting on their hands now — but nowhere near in line with sales yet. New home permits were also down in the ballpark of 50 percent year-over-most-recent years. And it should be noted that the Madison-area economy (the non-housing part, anyway) has been relatively strong.

Meanwhile, if you have access to the online W$J, go see Ruth Simon's Personal Journal piece (subscription req'd, sorry; see Calculated Risk for an excerpt) showing both rising delinquencies (headed towards the last local peak, in 2002) and loosening mortgage standards. The Comptroller of the Currency gave a speech to the American Bankers Association noting a "significant easing" of standards, the opposite of what you'd expect in as the market "cools." Reportedly, the main form of "easing" is increased use of "nontraditional" mortgage products — i.e., interest-only and negative amortization loans, the latter being especially risky with flat or declining prices. That such products are ticking time-bombs for many households' finances has been extensively discussed elsewhere.

So, to recap, the housing market cooling has been sharp despite lenders trying to pump even more funny money into the market. Good luck with that soft landing, Chairman Ben!

Update: Must check my own archives! Last September's house and condo sales were reported at the time to be 563, vs. 443 last month — so the year-over-year decline is "only" 20.8%. Which is still pretty bad. The 29.2% two-year drop is correct. That's bad, too. It's unclear whether the original 2005 sales figures had been revised upwards, as the data Richgels reported aren't on the Realtors Association of South Central Wisconsin's website.
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