What's a builder to do? Even with housing starts to their lowest levels in decades and home builders mothballing communities, there's not much they can do to combat lenders who won't lend or a recession that steals, at least temporarily, their home buyers. From a Wall Street Journal article:
A deepening recession and tight credit conditions are compounding problems in the housing market, suggesting that declines in home prices may continue well into 2009.
Sales of existing homes tumbled 8.6% in November from the prior month to an annual pace of 4.49 million units, the National Association of Realtors said. The figure reflects contract closings, which lag behind sales activity, and as a result capture the credit-market turmoil that hit the economy starting in mid-September.
New-home sales declined 2.9% to an annual rate of 407,000 units, the Commerce Department said, continuing a nearly three-year decline.
The housing sector has been hit hard throughout the year by an oversupply of homes that gradually forced high prices to fall. Tumbling prices, in turn, hurt the overall economy by battering financial institutions, reducing the wealth of homeowners and prompting job cuts in the housing sector.
Now, the worsening recession is further damaging the housing market. Consumers who lose their jobs are adding to homeowner defaults, pushing forecasts for when the sector will hit bottom into the second half of 2009 or later. Until the housing market turns around, the overall economy is unlikely to grow much. Economists call this cycle an adverse feedback loop.
What this also means is that prices could fall below the historical ratios of income or rents until the economy rebounds.
There is one glimmer of good news not reflected in the latest figures: a sharp drop in mortgage rates in recent weeks tied to the federal government's efforts to support the housing market. Though tighter credit terms are restricting many potential borrowers, lower rates could pull some potential buyers off the sidelines and slow the price declines.
A broad measure of home values by the Federal Housing Finance Agency, released Tuesday, showed prices nationwide dropping 1.1% in October from the prior month and 7.5% from a year earlier. The agency's index, built on purchase prices of houses backing mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, is down 8.8% from its April 2007 peak...
The Commerce Department's sales figures showed the median price of a new home at $220,400 in November, down 11.5% from a year earlier. The average price declined 9.2% to $287,500. The inventory of unsold new homes declined 7% to 374,000 at the end of November. That represents 11.5 months of supply at the current pace, down from 11.8 months in October.
"Home-building activity has declined so much that the backlog of unsold units is starting to be absorbed at a fairly rapid clip even in the face of such a slow sales environment," said Morgan Stanley economist David Greenlaw, who added that inventories won't drop to "manageable levels" for six to nine months.
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