No Escaping This Bust

“Home sales down 8.4%, could be bottom,” claims the headline on last Friday’s USA Today. What do they know that I don’t, I ask?

They know what the realtors and their associations tell them. And that’s about it. Because, unfortunately for American consumers, the real estate news is predominately written by reporters — not real estate investors with years of experience to share.

Dear reader, it’s in the best interest of the people selling investments to tell us that times are good… or that the bottom is here. And that’s exactly the news that organizations such as the National Association of Realtors like to spread.

The hard facts about the real estate market in the U.S. are truly scary. And, as a former real estate man, but always an investor and an economist, I don’t believe the U.S. economy will escape the wrath of a real estate market gone “bad.”

Here are just some of those hard facts:

— Sales of existing homes in the U.S. fell 8.4% in 2006; the steepest one-year decline in 17 years.

— On average, existing home sales fell 7.9% in December 2006 from December 2005. In areas that were once referred to as “hot” property markets, the downtrend in sales is worse. In Florida, sales of existing homes in December 2006 were down 28% from last December.

— The median price of new homes sold in 2006 was up 1.8% 2005 — and we all know prices for construction materials are rising faster than 1.8%. New home prices had risen 9% in 2005.

It is estimated that over $2 trillion in adjustable rate U.S. mortgages will be coming due in 2007. Plenty of U.S. mortgage holders will find themselves paying more in monthly payments this year, and this fact alone will place huge stress on the average American consumer in 2007.

How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!