A Housing Catastrophe Waiting to Happen

I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The problems in the housing market continue to get deeper:

— New home builders are now offering more incentives to buyers than at any other time in the past seven years. According to the National Association of Home Builders, 75% of U.S. home builders now offer some form of incentive to attract buyers, up from 50% last year at this time.

— The U.S. Commerce department reported last week that new home sales fell 3% from May to June.

— The number of new homes up for sale has risen 25% from last year.

— In the U.S., the supply of unsold used homes is at 6.3 months while new home inventory is at 6.1 months supply–both near eight year highs.

The stock prices of the major U.S. home builders continue to plummet, down almost 50% in the past 12 months. Stock prices don’t collapse without a reason–the market is telling us something about the U.S. housing market and the news is very bad.

Homebuilders are offering all kinds of incentives to lure home buyers, because if they drop prices instead, the message past home buyers in the same communities get could be very negative.

The U.S. could be heading for the first outright annual decline in home prices on record, unadjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy. I’m urging my readers to think smart and prudent during this changing economic environment.