More Housing Woes

In my earlier article Housing On Borrowed Time?, I mentioned an excellent Barron's article that discussed problems with housing and mortgages. In today's Wall Street Journal, James R. Hagerty and Michael Corkery wrote an excellent Page One feature article After the Boom: Housing Slump Proves Painful For Some Owners and Builders (subscription required) that again emphasizes problems in the housing market.

But mortgage rates began rising and surging inventories of homes for sale finally caught up with demand. Though economists had been predicting a slowdown in housing for years, many homeowners and builders were surprised by how fast the market changed. "It's just like somebody flipped a switch," says Lynn Gardner, a real-estate auctioneer who works in Northern Virginia.

"It would be difficult to characterize the position of home builders as other than in a hard landing," says Robert Toll, chief executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31.

In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. "I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy," he says. "This time, you've got low unemployment, you've got job creation, you've got a stable stock market and relatively low interest rates."

Because the housing industry provided a tremendous amount of employment and growth and because many homeowners used their increased equity in their homes to finance their lifestyles, I fear now that prices have softened that the general economy might soften too.

The Wall Street Journal has five other articles that compliment the theme of a slowing market:

1. Toll Cuts Outlook as Profit Drops, Seeing No Sign of Market Bottom
2. Home Builders Sour on Condos, But Apartment Interest Is Strong
3. Lowe's Net Rises, but Outlook Is Cut
4. Consumers Curb Upscale Buying As Gasoline Prices, Housing Bite
5. Homeowners Start to Feel The Pain of Rising Rates

All articles require a subscription to the Wall Street Journal. The seven articles, including the article from Barron's referenced earlier, paint a strong picture of weakness in the housing sector. Moreover, there is some evidence as expressed by Lowe's and other retailers that higher energy costs together with higher interest rates are affecting the consumer. Two key questions that remains are, how much longer will the housing correction last and how severe will it be?

Update

The Wall Street Journal provided another article on housing Existing-Home Sales Dropped 4.1% In July to Lowest Level Since 2004 (subscription required).

Sales of previously owned homes fell in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

Home resales fell to a 6.33 million annual rate, a 4.1% decline from June's revised 6.60 million annual pace, the National Association of Realtors said Wednesday. June resales were originally seen at 6.62 million.

...

The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3- month supply at the July sales rate, the highest since April 1993. The past year has seen the sharpest increase in inventories on record, Mr. Lereah said.

To help put this information in perspective, I strongly encourage you to read Doug Kass's article Factors Aligning Against the Boom Cycle (freely available from TheStreet.com website).