So the full-year numbers are in, and once again, "Housing set a record." America's favorite new "investment" finished up the year strong -- or so the National Association of Realtors (NAR) would have us believe.
Existing home sales "easily" set a record, noted the NAR (Motto: "Everything's fine! Now, about that 6%!") There were more than 7 million existing homes sold in all of 2005, a 4.2% increase over the tally from 2004. But that's a more sanguine view of reality than you get if you look at the nitty gritty.
Here's how the numbers work. The NAR tracks a "seasonally adjusted annual rate." In November, that rate was 7 million. By December, that rate had dropped to 6.6 million, which is a 5.7% downturn from the prior month, and 3.1% slimmer year over year. It's no surprise there are now more houses on the market; the current 5.1 month supply, according to the NAR figures, is a number we haven't seen for more than a year.
Typically, the NAR's chief economist painted this situation in the brightest colors possible, calling it "expected" and part of a simple "market adjustment." Yes, he even whipped out the comforting "soft landing" story. Overall fundamentals, he said, "remain solid, driven by population and employment growth, as well as favorable affordability conditions."
Perish the thought that this may have much less to do with population and employment growth. In fact, job growth has not been that robust. It only looks good if you ignore past benchmarks and think that job growth figures that lag the tally of workers entering the job market is a good thing. No, I think this has a lot more to do with the whole "affordability" thing, as evidenced by the giant percentage of homebuyers relying on those gimmicky interest-only adjustable-rate mortgages (ARMs).
This is why I fear the NAR's soft landing may be anything but. As the ARMs start readjusting to higher interest rates and the housing market continues to cool, the myth of "building equity" without paying a principal may just come home to roost. Ditto the phenomenon of increasing household income by using the old home as an ATM via home equity loans.
Some people fear an end to the big housing happyfun will mean bad things for the likes of Motley Fool Inside Value pick Home Depot
For related Foolishness:
- Is housing solid or soft?
- Is housing roaring back? Check those numbers again.
- H stands for both Housing and Hiss.
- The housing experts change their tune.
- Home prices help the California Dream go bad.
- Look behind the housing bubble babble.
- Bubble? You bet. But only Fools seemed concerned.
Seth Jayson will take the rental for now, thanks. At the time of publication, he had shares of Home Depot but no positions in any other firm mentioned. View his stock holdings and Fool profile here . Fool rules are here .