October 27, 2006


Sales of new houses on rise; median price down 9.7% (Bob Willis and Joe Richter, 10/27/06, Bloomberg News)

New-home sales in the U.S. unexpectedly rose for a second month in September as builders focused on meeting demand for cheaper homes, but a surge in demand for dwellings in the $150,000-to-$200,000 range drove the median price of a new home down 9.7 percent from a year ago, the most since 1970.

The median price of a new home declined to $217,100 in September from $240,400 a year earlier, Thursday's report showed. It was the biggest decrease since an 11.2 percent year-over-year drop in December 1970, the Commerce Department said. The median price was the lowest since $211,600 in September 2004.

Sales rose in two of four regions. They increased 24 percent in the West to 280,000, and 6.9 percent in the South to 603,000. They fell 35 percent in the Northeast to 57,000, and 6.3 percent in the Midwest to 135,000.

How will the USA cope with unprecedented growth? (Haya El Nasser, 10/27/06, USA TODAY)
The USA added 100 million people in the past 39 years and last week topped 300 million. We'll add the next 100 million even faster. Sometime around 2040, according to government estimates, the population clock will tick past 400 million. [...]

Can the USA, which trails only China and India in population, absorb another 100 million people in such a short time? Where will everybody live? Space itself isn't the issue. More than half of Americans live within 50 miles of the Atlantic, Pacific, Gulf and Great Lakes coasts on just a fifth of the country's land area, according to the Center for Environment and Population, a non-profit research and policy group based in New Canaan, Conn.

But people can't live on land alone, especially if they want water in the desert, plentiful fuel to power long commutes, energy to cool and heat bigger houses and clean air and water. How and where they live could determine how well the nation — and the environment — will handle the added population.

How many more millions do we need to import just to build houses for the next 100 million?

Cheer Up, Homeowner (DIANA FURCHTGOTT-ROTH, October 27, 2006, NY Sun)

[H]ousing is naturally slowing from its rate of the past two years. Its rapid growth could not continue. Even though last month's national housing starts, a measure of new houses under construction, surprised analysts by rising 5.9%, for the year as a whole, starts are down 9% from 2005. If this year's trends continue, it would result in a level of 1.85 million housing starts in 2006.

John Weicher, my colleague at Hudson and formerly assistant secretary and federal housing commissioner at the U.S. Department of Housing and Urban Development, says that this level of housing starts "is lower than the past three years but better than any previous year back to 1978."

Similarly, yesterday it was announced that sales of new single-family homes actually rose by 5.3% in September. Existing home sales fell 2% in September to an annualized level of 6.18 million units. It's likely that 2006 sales for both will end up below 2004 and 2005, but in line with 2003 figures.

The boom years of 2004-2005 provide an unrealistic perspective when we look at housing starts and sales. Because these years were off the charts, 2006 looks poor in comparison. But 2006 levels are in line with 2003 patterns. What we are seeing is a return to a more sustainable growth path.

One reason for this sustainable growth path can be found in new research by a professor at Princeton, Harvey Rosen, along with economists Kristopher Gerardi and Peter Willen of the Federal Reserve Bank of Boston.

Mr. Rosen finds the financial deregulation that took place in the 1980s has enabled households to borrow based on their long-term rather than their current incomes. Milton Friedman won a Nobel Prize for the now-common idea that people spend based on expectations of lifetime, rather than current, income. But the impediment to spending in accordance with future income is the ability to borrow. Being able to borrow based on lifetime income makes the demand for housing stronger.

Using information on earnings and spending for the period 1969 to 1999, Mr. Rosen finds that up to the mid-1980s the size of mortgages was closely related to current income. After 1985, the market for housing finance improved, and Americans were more likely to be able to obtain mortgages that were in line with their long-term income prospects.

The mortgage products available to Americans have expanded dramatically over time. In the 1970s homeowners could get any mortgage they wanted — as long as it was a 30-year fixed term. By the end of the 1980s they could get adjustable rate mortgages, 20-year mortgages, and even interest-only mortgages, many developed by New York financial institutions. Another change was that portfolios of mortgages began to be converted to securities and traded among New York investors.

According to Mr. Rosen, the "combination of innovative mortgage products, deregulation, and the development of a secondary market in mortgages" has substantially enhanced the ability of Americans to buy homes that make sense for them given their expected future incomes.

The ease of obtaining a mortgage is especially important to first-time homebuyers, whose major constraint is the down payment. It is also more important to lower-income homebuyers with future potential for income growth, who found their ability to borrow limited under prior regulations.

Immigrants fill gap, some industries say (PATRICK McGEE, 10/27/06, DFW STAR-TELEGRAM)
Leaders of some industries say there's no room for a debate about whether immigrants are taking American jobs. There's only room for more workers.

They say huge labor shortages exist in some industries, such as trucking, welding and restaurant work, and they've got numbers to show it. Large chunks of the U.S. work force are approaching retirement age, and there are not enough young workers to replace them, so immigrant workers are needed, they say.

The American Welding Society, an industry group based in Miami, predicts a shortage of 200,000 welders nationwide by 2010.

Posted by Orrin Judd at October 27, 2006 8:23 AM

Real estate around here tripled in value over the past five years or so. Now it's plummeted 9.7%. So it's retained 290.3% of its inflated value. Well, not quite. These numbers are bogus.

Property values skyrocketed because of wild speculation and that hasn't stopped, it's just going in the opposite direction now. Had an illuminating conversation with a local real estate mogul who confided that the smart money is now waiting for the market to hit bottom before jumping in again. The smart money got burned and now they're looking to make it up.

What's the adage about twice burned ... but nah, they won't learn.

Posted by: erp at October 28, 2006 11:03 AM