Friday, December 28, 2007
SUZANNE PRATT: More bad news on the housing front today. Fresh data from the Commerce Department show sales of new homes plunged 9 percent last month to their lowest level in more than 12 years. The larger-than-expected drop in sales is the latest sign of deepening trouble for the housing market, the bleakest sector of the economy this year. As Erika Miller reports, most experts see no sign of a turnaround anytime soon.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you think housing was weak this year, brace yourself for next year. Many industry experts think we're only half way through the housing downturn. They say the problem is a classic case of too much supply, too little demand. S&P economist Beth Ann Bovino says the solution is for home prices to come down another 5 percent or so.
BETH ANN BOVINO, SR. ECONOMIST, STANDARD & POOR'S: Within the housing sector, we will need to see housing prices fall. This will actually help go through in a sense that inventory of unsold homes. When the prices start to drop a little bit, then you're going to see buyers become more interested.
MILLER: Experts say some previously sizzling markets like Florida could suffer double digit drops next year. On the other hand, prices are expected to barely dip in the northeast where inventories are leaner. Economists expect foreclosures to increase as much as 33 percent nationwide, adding to the housing supply. Lenders have also tightened mortgage requirements in response to the sub-prime crisis. That means a smaller pool of qualified home buyers. The most optimistic projections call for housing to stabilize in the second half of the year. Economists say much depends on whether the U.S. economy slips into recession.
BOVINO: We're at the brink, I guess you could say, of much more severe issues happening. We do see -- we have a 40 percent likelihood that there could be a recession in 2008. That would certainly extend the housing crisis even further out into 2009.
MILLER: All of this is of course good news for home buyers. Brokers say prices on new homes are the lowest they've been in years. But the outlook is bleak for the millions of families hoping to sell their homes. Economist Lakshman Achuthan recommends taking a good look at your asking price.
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH: People are living in fantasy land, actually, where they think that their home price is going to just remain flat or maybe even go up in the next 12 months. It's just not going to happen.
MILLER: Economists are waiting to see a reduction in inventories before calling a turnaround. They also want to see an improving job market, which would help stimulate housing demand. Erika Miller, NIGHTLY BUSINESS REPORT, New York.