'Builders Speculative As Demand Wanes': BW

The financial media is reporting on the housing bubble this morning. " Michael Youngblood, of Friedman, Billings, Ramsey Group Inc., has been tracking the U.S. home market for several years and forecasts steep declines in housing prices if the economy recedes over the next year. 'We expect median existing home prices to fall over 18 quarters by an average of 19.9 percent, ranging from 49.3 percent (Los Angeles) to 0.3 percent (Port St. Lucie),' he wrote in a recent report about what would happen to the most torrid markets during a sustained slowdown." "Youngblood says he's identified pricing bubbles in 69 markets that include New York City and Nassau County, New York; Washington, D.C.; all of the urban areas in Nevada; 27 of 28 areas in California and 11 inland ones. He estimates that prices would fall by an average of 25 percent in these markets if a contraction persists for one to four years. He defines a bubble as a huge disparity in home prices relative to per-capita personal income in each market." "If the market is slowing, as these reports suggest, buying for investment may be a bad idea unless you go bargain shopping in some of the most sluggish markets, which are generally not to be found on either coast. Selling properties you own might be wise if you need to take a profit or avoid a loss in case the bubble-prone markets deflate." And Business Week. "It appears builders are becoming more speculative as demand is set to wane. During the second half of 2005, the supply of new single-family houses available for sale has been growing at the fastest pace since the mid-1980s. The surge in supply has corresponded with a gradual slowdown in sales and, until December, little adjustment in housing starts." "Today's situation stands in contrast to the brief slowdown in late 2003 when a bump in long-term interest rates dampened homebuying. Inventories rose, but remained at relatively low levels. In 2003, 'it was safe to say that homebuilders had entirely avoided the temptations of speculative building,' says economist Chris Low. 'That is no longer true today.'" "Making matters worse for homebuilders is a surge in the number of existing homes for sale, up 20.6% from a year ago. As the housing market plateaus, speculative activity will evaporate. That's when housing should slow noticeably. Home sales could post the biggest annual decline since the 6.3% fall in 1991. At that point, builders will scramble to stop projects, and the big gains in construction hiring that have helped to drive the jobless rate lower could start to reverse."