Sunday, October 29, 2006

Trajectory for housing demand

Now that the bloom is off the housing boom, the big question is how deep a retrenchment there will be, how long it will take, and how long before housing gets back to a steady but non-boom pace. Some people believe that the retrenchment is complete, while others insist that it has hardly begun. My view is that it is very difficult to tell, but it could be several more months before we hit bottom and begin to expand again.

Mortgage rates are still quite reasonable and there is lots of money sloshing around the financial system looking for a productive home, and financig mortgages remains financially attractive.

Demographics are still in favor of a continued expansion of demand.

The recent slump may simply have been a combination of speculators losing interest and a peaking of mortgage rates which cut into demand.

Mortgage rates are in fact cheaper than during the peak this past summer. This factor alone could boost demand in a noticeable manner.

Any additional pullback in prices will also begin to attract demand after the next few months.

My best estimate at this stage is that housing demand may taper off moderately more through January or February or March and then start to pick up a bit in the April, May, June timeframe. It won't be a new boom, but at least strong enough to not be a drag on the economy. Housing could well be a moderate drag for the next month or two, but begin to flatten out before rebounding in the Spring.

-- Jack Krupansky

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