| The Housing Bubble --- Is It Finally Ready to | | | | burst. Housing construction and new building |
| Burst? ---- Economists have been predicting the | | | | permits were down sharply in October. The |
| burst of the bubble for the past five years. Every | | | | Commerce Department reports that construction |
| year they have been wrong. 2005 was supposed | | | | of new homes and apartments fell by almost 6%, |
| to be the year when things really started to slow | | | | which was the biggest decline in seven months. |
| down. Low and behold, 2005 was another banner | | | | Applications for new building permits fell almost |
| year. Those in the building supply business are | | | | 7%, which is the biggest decline in six years. |
| sitting around smiling as they count the profits. I | | | | Nariman Behravesh, another expert chief |
| am not an economist, thank God, but maybe, just | | | | economist stated, "We are likely to see a steady |
| maybe the economists are going to finally be right | | | | downward trend in housing activity over the next |
| as some signs are beginning to show that may | | | | few months. Mortgage rates are at the highest |
| indicate a slow down in the housing boom. And of | | | | level seen in more than two years." National |
| course, the auto industries problems, specifically | | | | Association of Home Builders said a new survey |
| General Motors with their recent layoffs and plant | | | | showed builder optimism fell in November, the |
| closure announcements just adds strength to this | | | | largest amount since the September 11th |
| conjecture. What's the old saying? "So goes | | | | terrorist's attacks. |
| General Motors, so goes the economy." | | | | So, is the bubble ready to burst? Many |
| Sales of existing homes fell almost 3% in October | | | | economists seem to thinks so. However, the |
| and the decline could have been higher except for | | | | statistics cited have been cited in the past. The |
| the demand created by the surge of Hurricanes, | | | | predictions of a bubble burst have been reported |
| especially Katrina. The level of unsold homes in | | | | in the past. On the other hand, some economists |
| October was at its highest peak in nineteen years. | | | | disagree at least partially. David Seiders, chief |
| Some of this may be attributed to the fact that | | | | economist for home builders stated that he |
| prices have risen at a pace not seen in twenty | | | | believed that sales of both new and existing |
| five years. A chief real estate economist stated; | | | | homes, while still setting records for a fifth |
| "The housing boom has likely passed its peak. (We | | | | consecutive year in 2005, will only see a small 5% |
| have heard this before) The boom is winding | | | | decline in 2006. This would represent a very soft |
| down. I expect continued softening in housing." | | | | landing (5% is not much considering the growth |
| (David Lereah, chief economist for Realtors.) | | | | we have experienced over the past five years). |
| Economists also predict that the buildup of unsold | | | | Do they really know? Who knows? Maybe that's |
| homes across the nation would dampen the surge | | | | why Roosevelt said he would only deal with "One |
| in prices that saw 69 cities report double digit | | | | Armed Economists." So they couldn't say, "On the |
| price increases this summer compared with third | | | | other hand"... |
| quarter 2004. Another prediction is an additional | | | | Be cautious in 2006. Don't panic but don't bet the |
| ½ point increase in interest rates by June | | | | farm. Initiate a contingency planning process. If |
| of 2006 which could create a slow down in price | | | | you don't need the plan in 2006, so what, sooner |
| increases to about 5% next year. | | | | or later the economists might get it right and that |
| In reference to new construction, it also has | | | | contingency plan that you have tucked away will |
| shown signs that the bubble may be ready to | | | | become invaluable. |