Saturday, September 09, 2006

'Prices are falling' becomes real estate mantra

Mortgage market commentary

Bond yields rose slightly this week in a long-overdue correction from straight-line decline, but not enough to move mortgages above 6.5 percent for low-fee deals.

A bigger rate rise was intercepted at mid-week by declines in price in the whole commodity complex. Oil has broken to $67, natural gas to $5.71 (60 percent below last winter's spike), wholesale gasoline to $1.63 (retail gas should fall below $2.50 in a month or so), and gold may shortly fall below $600. Oil patch people still say that energy markets are vulnerable on the upside, but I have to believe that the last year's high prices are at last affecting both consumption and supply.

Basic economic data continues to be good: the purchasing managers' service-sector numbers were fine, and there was no increase in this week's claims for unemployment insurance.

The housing market is now the all-consuming economic topic, and "prices are falling" is the everybody-says, everybody-knows factoid du jour.

It's not a whisper-turns-to-hysteria deal. The dominant tone in the prices-are-falling pronouncement is pleasure, often self-satisfied and/or envious: I knew they would fall. Serves 'em right (most common among those who missed the party, couldn't afford to buy what they thought they deserved, or don't much care for Realtors). Every bond trader wants a housing collapse and recession. Stock market types are delighted that housing may finally look worse than their (flat) stuff.

Whenever somebody recites the prices-are-falling mantra, take a second to check content. Asking prices? Upside asking prices are always subject to downward revision. Average or median prices? Those are statistical curiosities moving with the mix of houses sold, saying nothing about the fate of individual homes. Or the real deal: homes that cannot be re-sold for a price paid a year or two ago?

Read more of the Inman News article at Citywide Services

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