Ok, thats a little dramatic – semi-borrowed from an REM song. Still, the culmination of reports over the past week appears to confirm what most have known for the past six months: The Housing Boom Is Over.
New home sales fell 5% (4th decline in 7 months) [Commerce]
Backlog of unsold new homes hit a record [NAR].
Existing home sales fell 2.8% in January (4th consecutive monthly decline) [NAR].
Median sales price of existing homes $210,500 in January down from $219,500 in July 2005 [NAR].
43% of all new jobs created since 2001 are related to housing.
As a sign of more difficult times ahead, specifically in the real estate economy, analysts are beginning to raise their estimates as to how high the Fed will go until they feel inflation is in check. Consensus has been to either 4.75% or 5%. Lehman Brothers has just increased their federal-funds rate peak to 5.5% in August or September. They have not penciled in a policy reversal at any time in the next year and a half [Barrons]. Their reasons for the change:
although the housing market is cooling off, the process is slow and Fed Chairman Bernanke has reiterated the idea that the Fed will respond slowly to the cooling.
the economy is showing more underlying strength than we had expected. Therefore, it will probably take longer for the diminishing housing-wealth effect to overcome an even stronger underlying trend in growth.
In other words, no bursting housing bubble is seen by the Fed. They are focusing on the overall economy and not tinkering specifically with housing at this point (much to the disappointment of those who follow the housing market, I might add).