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All of that talk touting the “at or near bottom” theory of housing was worthless. The one-time bright spot of the U.S. economy, which thrived on a prolonged boom to 2006, is crashing. Homebuilders are cutting prices, attempting to unload inventory glut with bizarre incentives. The National Association of Home Builders just told us that builder confidence sank by another two points to 22 -- its lowest reading since January 1991.
And the Commerce Department just finished telling us that new home construction and apartments plunged 6.1% in July to a seasonally adjusted annual rate of 1.38 million, which is down 20.9% year over year, and painfully represents a pace not seen since January 1997.
Truth is, further credit deterioration, an upcoming rash of ARM resets in the peak month of October 2007, and crippling home inventories will lead to further decay in housing, the one-time bright spot turned nascent albatross.
Should housing continue its downward trajectory (which we’re betting on), a housing turnaround isn’t feasible until 2010, at best, taking into consideration growing foreclosure rates now and in the future. Says RealtyTrac, foreclosure filings jumped 9% from June (164,644) to July (179,599), and skyrocketed some 93% year over year as Nevada, Georgia, and Michigan accounted for some of the highest rates.
As for what’s just ahead… October 2007 happens to be the peak month for mortgage resets. That’s when $50 billion in mortgages will reset at higher rates. After that, say reports, $30 billion worth of mortgages will reset every month until 2008, possibly forcing millions of cash-strapped homeowners to delinquency and foreclosure filings.
Other than that, everything’s fine. Come on in. Don’t worry about the sharks.
Ian L. Cooper
Death Cross Trader
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