September 27, 2007
JustQuotes: The Bigger Picture Is Looking A Bit Bleak
“Fannie Mae Chief Executive Officer Daniel Mudd said the [national] housing slump will last beyond next year, dragging down home prices and increasing credit losses at the largest provider of financing for U.S. mortgages. ‘We don't think we hit a bottom until the end of '08 and then we have some period of time to work our way back up again,’ Mudd said today in an interview in Washington.”
“Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, underscoring the Federal Reserve's concern about the broader economy. Purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, the Commerce Department said today in Washington. The median price dropped 7.5 percent from a year ago.”
“Sales fell in two of four regions. The decline was led by a 21 percent slump in the West and a 15 percent drop in the South. Purchases increased 42 percent in the Northeast and 21 percent in the Midwest.”
∙ Housing Slump to Last Beyond 2008, Fannie's Mudd Says [Bloomberg]
∙ U.S. Economy: New-Home Sales Decline 8.3 Percent [Bloomberg]
First Published: September 27, 2007 9:30 AM
Comments from "Plugged In" Readers
Two good paragraphs from CNN:
"Still, as weak as the new home sales report is, experts caution it could actually be masking other signs of weakness. Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests.
Also about three quarters of builders surveyed by their trade group report offering incentives, such as paying for closing costs or offering additional features on a new home for free, in order to maintain demand. So the drop in prices could actually be more severe than the report indicates."
Posted by: Michael at September 27, 2007 11:44 AM
On Michael's first point here's what KB Homes said in their quarterly results today:
"The cancellation rate for the quarter was 50 percent, compared with the prior quarter's 34 percent, reflecting the troubles in the mortgage market, KB said".
Posted by: Amen Corner at September 27, 2007 12:55 PM
After reading Amen Corner's post, I went to KB's website and found this from their Q3 results:
"The Company's 2007 third-quarter cancellation rate of 50% was lower than the 60% rate in the prior year third quarter but higher than the 34% rate in the 2007 second quarter, reflecting the challenged housing and credit environment."
I had never paid much attention to the cancellation stats before, but 50% sounded astoundingly high. Incredibly, it was even higher in Q3 2006. Are people actually forfeiting a deposit when they cancel? How can you run a business when half of your customers bail out?
This would seem to be pretty clear evidence that lots of people are projecting further price declines (and are putting money behind that bet by walking away from their deposits).
Posted by: howard at September 27, 2007 1:51 PM
These are horrible numbers from August, but the mortgage meltdown started in MID August. And in the waning days, before the creative financing disappeared, I'm sure a lot of underqualified people jumped in, knowing it would be their last chance. Both of those things INCREASED the August numbers.
September will likely be worse still.
Posted by: tipster at September 27, 2007 10:25 PM
Image if we're only in the first couple of innings of all this. Several home builders will be looking at insolvency it seems.
Posted by: gh at September 28, 2007 9:21 AM