(1) April sales of previously owned homes up 15.1% since April 2004. The largest such increase in 25 years. (Comment: in a normal housing market, prices stay even with inflation.)
(2) “Some analysts warn that the higher home prices go, the greater the possibility of a painful drop in house values at some point.” (Comment: a drops are painful because people can buy homes with 10% down or less, so a drop greater than 10% will cause some homeowners to have negative equity in their house.)
(3) “Meanwhile, the hot real estate market is supporting the nation's overall economic growth by giving consumers more money at a time of lackluster wage growth and high energy costs, analysts said.” (Comment: huge recession coming when housing prices come tumbling down.)
Hi Half Sigma
The part of the article that bothers me is that higher home prices are giving people the sense that they are wealthy. Some people are dipping into their home equity to finance consumption. This is the road to bankrupcy.
Home prices cannot continue to climb on average. Some areas may continue to see housing price rises if those areas become more desirable. But people are already borrowing to the max to buy these homes as it is, and lenders will not lend more money to potential homebuyers than their income justifies. I think home prices will flatten or go down a bit next year.
Posted by: Michael H. | May 25, 2005 at 10:01 AM