Housing Prices Adjust, Rental Rates Soar
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As we predicted when the speculators fell out of the market, housing prices would come down a bit. The numbers released state a drop of 9.7 percent nationwide but compared to the multiple years of double digit appreciation this is not so bad. The nugget in the numbers is that home sales increased, not decreased, so that homes are still selling.
The Commerce Department reported that the median price for a new home sold in September was $217,100, a drop of 9.7 percent from September It was the lowest median price for a new home since September 2004 and the sharpest year-over-year decline since December 1970. The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record.
The price decline for new homes came while the sales pace picked up, rising by 5.3 percent to a seasonally adjusted annual rate 1.075 million homes. It marked the second consecutive increase in sales following three months of declines.
On the other hand, rental rates are soaring as many of the people sitting on the sideline that normally would have bought are waiting it out. The demand for rental units is going up combined with a strong economy is raising rents. The fun part is when the damn breaks and people think it is time to buy again, housing prices are going to go right back up with all this pent up demand. So those sitting on the sidelines better be prepared to jump quickly when the market turns.
Apartment rents and demand are soaring nationwide as the economy produces good jobs and people who might have bought homes a year ago settle for apartments while they wait for housing prices to tumble.
In addition, the supply of rental housing tightened in the past year as many apartments were converted into condominiums in places like Florida and Southern California. Some of those units are now returning to rental markets at high prices as owners struggle to sell them. via BREITBART.COM
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Damn mainstream news and media! That is why I listen to NPR! 
Pingback by Scared Monkeys on 26 October 2006:
[…] So it sounds like a market that was oversold is correcting and demand is building up. To read more about how housing market economics work and more on todays housing announcement, go to the Real Estate Bloggers for the rest. […]
Comment by Pat Kitano on 26 October 2006:
Mike at Altos (http://www.altosresearch.com/blog/archives/153-Todays-Inflation-Numbers-and-the-Housing-Bubble.html) implies the same idea:
One of the fundamental Housing Bubble arguments is that home prices have run away from rents in the last few years. Therefore prices have to come down to bring it back to equilibrium. Wouldn’t it be a pleasant surprise (for those of us riding this home price wave) if the actual inverse took place? The same argument could imply that rents really continue to adjust up relative to home prices. Just a little food for thought.
Did no housing economist foresee this simple economic concept - rental rates rise while homes maintain their stepped up value -before? I see no economist talking about pentup buyer demand either…it’s all about unsold inventory now… Wouldn’t it be a shocker if buyer pentup demand actually starts another wave of increase in home prices, similar to what happened in 2002 after the Sept. 11 shock effect? No economist would touch that one today, but they didn’t in spring 2002 either.
Comment by Tom on 26 October 2006:
Pat,
Think about another factor, interest rates and a weak housing sector are also tied to each other. The Fed is going to have a hard time raising or even maintaining the rates if housing gets any weaker. So then, another obstacle is removed from buyers.
I am going to go into this in another post, but the consensus out there on a macro level is that eventually a majority of the population wants to own their own home. The American Dream and all that. So the people who got married in the past year have been waiting on the sidelines because every relative and friend is telling them they should not buy. When they jump back in at attractive interest rates the game will be on, probably not to the level when the speculators were driving the game, but to a normal level.
Tom
Comment by Pat Kitano on 27 October 2006:
Yep, complete agreement… interest rates won’t rise because not only is our economy fragile, there’s a lot of worldwide security uncertainty… one catastrophe (God forbid) will have all the world banks acting in unison to support the world economy…
it’s more than the American Dream… it’s the Worldwide Dream… http://bloomberg.com/apps/news?pid=20601109&sid=a0YjZrU.EvNM&refer=home
Comment by John Francis on 30 October 2006:
Without the speculative aspect, the forces that were in equilibrium before the boom began will reassert themselves and housing prices will return to 2000 prices, perhaps less because after a drop that far people will be rather sour on real estate.
The “speculative” aspect is simply, “This house will be worth more next month”. That factor is gone. Anyone buying now is buying a house built on quicksand and has my sympathies.