Where Have All the Buyers Gone?

The Daily Reckoning: Weekend Edition
March 4-5, 2006
Baltimore, Maryland
by Kate Incontrera


Could it be? Is the real estate bubble edging closer to its pin?

This past Tuesday, Toll Brothers, the U.S.’s largest builder of luxury homes, reported a 29 percent decline in their first quarter, that ended January 31. At year-end of 2005, there were 2.8 million houses and condos on the market – up 26 percent from the year before. And Goldman Sachs Chief U.S. economist tells us that existing home inventories, adjusted for seasonal variations, have climbed 38 percent since April – the largest eight-month increase on record.

What gives? It seems like just yesterday, people were willing to sign their life away for a McMansion. Now, new homes in formerly "red hot" areas, like Washington, D.C., are sitting on the market for months. Why is there is now more inventory than buyers, when for the past four years, homes have been selling like hotcakes?

Well, for one, home prices have continued to climb, along with interest rates. Recent figures released by the Office of Federal Housing Enterprise Oversight show that average U.S. home prices rose 13 percent from the last quarter of 2004 to the same period of 2005.

"Complaints about high home prices were voiced by more consumers in February than any other time during the last century," according to Richard Curtin, the director of the University of Michigan’s Surveys of Consumers.

The survey, released Friday, showed that consumer confidence fell last month, as home buying attitudes plummeted to its lowest level in 15 years.

"The latest survey indicates that consumers have adopted a less favorable outlook for economic growth, expressed heightened concerns about potential increases in unemployment, and no longer anticipate any additional declines in the inflation rate," continued Curtin.

In addition, Americans are not scrambling to gobble up these new and existing homes on the market, because there are just so many to choose from – they figure they have plenty of time. The DR’s own Addison Wiggin has been casually looking at houses in Baltimore’s Fells Point – a local hotspot for its close proximity to the water. When he expressed concern that he wasn’t quite sure when he and his wife were looking to buy, the real estate agent reassured him that there were plenty of houses on the market in that area – some even sitting on the market for a few months now.

"Heh," Addison told us. "I think we’ll wait a little longer. With that many houses available, prices are bound to level out – maybe even drop."

This sentiment is being felt throughout the country. And for good reason. If a certain listing doesn’t attract enough traffic, after 30 days, many brokerage firms will lower the asking price.

So, if you’ve been heeding our advice and waiting after real estate mania has passed to buy a new house, you may get your chance sooner than you expect.

Kate Incontrera
The Daily Reckoning

— The Daily Reckoning Book of the Week —

Cash in on the Coming Real Estate Crash: How To Protect Yourself From Losses Now, and Make Money After the Bubble Bursts
by David Decker and George Sheldon

Don’t you wish someone had warned you about the tech-stock bubble before it burst? You need to read Cash in on the Coming Real Estate Crash to know what to do – and not to do – now, before it is too late.

Cash in on the Coming Real Estate Crash explains how individual investors and homeowners can gauge the risk in their own local housing market. More importantly, the book explains how property owners can hedge against a crash, and adopt conservative strategies that will provide protection against the possibility of a crash.

THIS WEEK in THE DAILY RECKONING: Too busy to read the Daily Reckoning this week? Never fear, we have them all catalogued below, just for slackers like you!

Heroes of the Revolution, Part II    03/03/06
by Bill Bonner

"What intrigues us most is Che’s role as head of the Central Bank of Cuba. Of course, we know little about his actual performance as a central banker. We can merely guess from the results that no one ever did the job worse."

Fuel – The Catalyst      03/02/06
by Puru Saxena

"Every nation depends on oil and if payment for it can only be made in U.S. dollars, it creates artificial demand for the American currency. In my opinion, this is one of the main reasons why the U.S. dollar has not yet collapsed."

Radioactive Profits      03/01/06
by Kevin Kerr

"The uranium market is one that is like a wild roller coaster, and many of the equities associated with it can make investors queasy from the ride."

America’s Glorious Empire of Debt    02/28/06
by Bill Bonner

"Americans are proud of their empire – and should be. Without it, they could never have gotten so far in debt."

The Cab-Driving Economist     02/27/06
by The Mogambo Guru

"It could be that that consumers are spending by cutting back on other things…taxi drivers, by dint of their conversing with so many passengers in their cabs, have a good idea of what is really happening."

FLOTSAM AND JETSAM: We came across this "twisted tune" on the web and found it to be too funny to pass up. Enjoy!

Cheney’s Got a Gun
(courtesy of The Bob Rivers Show, 102.5 KZOK, Seattle)

Cheney’s got a gun
Cheney’s got a gun
The VP shot someone
But he’s no Alexander Hamilton
"I think I shot a giant bird"
Was the last thing his buddy heard

He tried to keep it secret
And he made the White House toe the line
And you know it’s such a pity
that he can’t call Scooter Libby
to take the hit for him this time

Cheney’s got a gun
Cheney’s got a gun
Old Harry Whittington
Is like buckshot in his bum
They pushed the legislation through
He made Harry pay his I.O.U.

He shot an 80 year old lawyer
And he hoped nobody heard the sound
He swears he wasn’t drinkin’ but how could he be thinkin’
He could keep the story underground?

Run away Run away from the press
Run away, run away from the press

Cheney’s got a gun
Cheney’s got a gun

Guess he’s never gonna run
for another term in Washington

What will little Georgie do?
What will the Congress put him through?
When his Enron friends got busted
He couldn’t keep them out of jail
Now his pals from Halliburton are feeling kinda certain
They don’t want to join him hunting quail

Run away run away from the press
Run away run away from the press

Cheney’s got a gun
Cheney’s got a gun

His friends say they gotta run
When he calls them up to have some fun

Cheney’s got a gun
Cheney’s got a gun

His big plans come undone
His dog days just begun

We recently posted this on the DR joke page…click on the link below to see what else is in the Daily Reckoning’s Humor File. Feel free to send any jokes, songs or the like to your managing editor at kincontrera@dailyreckoning.com

The Daily Reckoning