Just a few days ago, I noted how the mouthpieces for the national housing bubble had begun to change their tunes. Suddenly, the balloons that didn't exist were beginning to deflate. But not to worry, we were told -- it'll be a soft landing. Whew. As long as it's not a bubble.
"The boom is winding down into an expansion," according to remarks in an Associated Press article that were attributed to David Lereah, chief economist to the National Association of Realtors (NAR). The markets are simply "balancing themselves," in the words of NAR president Thomas Stevens, who, according to the press release, hails from Vienna, Va. (Curiously enough, I know a goodly bit about the housing market in that little burg, and "balance" might be the last adjective I'd apply to it.)
Well, the housing market is getting a bit squishier, but whether that indicates a soft landing is anyone's guess. And of course, your own landing will depend on what you paid for your place.
In October, sales of existing homes dipped 2.7% from September, which is actually a 3.7% increase when compared to last October. At the same time, prices climbed another 16.7% from Oct. 2004.
As usual, the NAR's press release touts housing as a "good investment," but buyers would do well to beware. Recent earnings calls from homebuilders like Centex (NYSE:CTX), Toll Brothers (NYSE:TOL), D.R. Horton (NYSE:DHI), and BeazerHomes all seem to indicate a slip in growth.
And I still don't think that the talk about the current situation takes into account the potential for mayhem when the current crop of real estate flippers -- er, excuse me, "investors" -- finally cries "uncle." Sure, it hasn't hit yet. Prices are still on the climb. But with interest rates making affordability no longer a function of creative financing, they will have to level off. And when they do, what's left? Why, selling, silly, and if there's enough of that, prices go down.
And there are other delights waiting for us in the lending industry. A potential implosion of the sub-prime mortgage market is part of the bear argument against originators like H&R Block (NYSE:HRB). And every time I write about this topic, I get stories -- some more credible than others -- about the great lengths mortgage writers are going to in order to secure business. "Go ahead and just leave the application mostly blank; we'll fill it in" is how one person described the process by which his friend secured a no-doc, interest-only ARM. And this wasn't from Guido's Shoeshine and Quick Loan. This happened, so it is alleged, at the offices of one of the country's biggest lenders.
If there are, say, a few bad apples in the mortgage barrels, just what will happen to all those banks like Wells Fargo (NYSE:WFC), Countrywide Financial (NYSE:CFC) or Bank of America (NYSE:BAC)? What about others holding all those mortgage-backed instruments? What happens to them if things go south?
Will it really be a "soft landing?" Courtesy of the same guys who said to hurry up and buy, because there was no bubble? We may soon find out.
For related Foolishness:
- The housing experts change their tune.
- While home prices help the California Dream go bad.
- Look behind the housing bubble babble.
- Bubble? You bet. But only Fools seemed concerned.
Need assistance doing the math on a home buy ... or not? Our Home Center can help you make the decision.
Seth Jayson used to live in Chicago.you know the rest of the song. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
