On Wall Street Wednesday, after the Dow and the S&P hit record highs on Tuesday, stocks are being impacted by the earnings miss of aluminium giant Alcoa and concerns about the margins of oil refiners plus poor housing data.
The Dow Jones Industrial Average fell 109, -0.77%, the S&P 500 stock index lost 6 points and the Nasdaq Composite Index fell 2 points.
Existing US home sales are forecast to fall to a five-year low, worse than forecast, signaling the US housing market is far from hitting bottom. New-home sales may decline 24% to a to a 10-year low of 804,000 according to the National Association of Realtors.
Conditions in the mortgage market are improving for consumers, which should help to release some pent-up demand in early 2008, according to the latest forecast .
Lawrence Yun, NAR senior economist, notes that widening credit availability will help turn around home sales. “Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,” he said.
Yun said it’s important to place the current housing market in perspective, and that 2007 will be the fifth highest year on record for existing-home sales. “Although sales are off from an unsustainable peak in 2005, there is a historically high level of home sales taking place this year – a lot of people are, in fact, buying homes,” he said. “One out of 16 American households is buying a home this year. The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.”
He emphasized all real estate is local with naturally large variations within a given area. “Markets like Austin, Salt Lake City and Raleigh have been outperforming recently and will continue to do well next year,” Yun said. “Other areas like Denver and Wichita will likely move up in the price growth rankings due to very positive local economic developments.”
Existing-home sales are expected to total 5.78 million in 2007 and then rise to 6.12 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 804,000 this year and 752,000 in 2008, down from 1.05 million in 2006; a recovery for new homes will be delayed until next spring.
“A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,” Yun said. Housing starts, including multifamily units, are likely to total 1.37 million in 2007 and 1.24 million next year, down from 1.80 million in 2006.
Existing-home prices will probably slip 1.3% to a median of $219,000 in 2007 before rising 1.3% next year to $221,800. The median new-home price should drop 2.1% to $241,400 this year, and then increase 1.0% in 2008 to $243,900.
The 30-year fixed-rate mortgage is expected to average 6.4% for the next two quarters and then edge up to the 6.6% range in the second half 2008.
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