Cancelled home orders: Latest bubble prick?

[IDemo]

Experts say jump in cancelled orders for new homes is latest sign of how investors inflated the real estate market recently, and how the market is due for a downturn.

Chris Isidore, CNNMoney.com senior writer
February 24, 2006: 2:49 PM EST

NEW YORK (CNNMoney.com) - Home builders are growing concerned about an increasing number of cancelled new home orders, which experts say could be a sign of an underlying weakness in the recent run in home prices.

Specifically, the cancelled orders could be the latest warning sign that buyers who were turning to real estate as an investment, rather than for their own housing needs, are shifting out of real estate. And that could mean that in many hot markets, the air is about to come out of over-inflated real home prices overall.

A survey recently conducted by the National Association of Home Builders of its members found one in 5 reporting more cancellations than six months ago, with 4 percent of the overall group saying the increase in cancellations has been significant.

"When you start to see cancellations, you really get worried," said David Seiders, chief economist for the trade group.

http://money.cnn.com/2006/02/24/real_estate/home_cancellations/index.htm?cnn=yes

[NickB79]

1. 2006 is gonna be a fun, fun year

The real estate market is poised to take a nosedive, taking the US economy down with it.

Numerous oil-rich nations are on the brink of war, so that will translate into higher oil prices.

Natural gas and oil production is still way down in the Gulf of Mexico, so heating bills will likely be high next winter as well.

There's a good chance we'll have another bad hurricane season in the Gulf this year due to global warming, which will hit the remaining oil rigs.

New Orleans is still in ruins.

We're still stuck in Iraq in the middle of an escalating civil war.

Did I miss much?

[Mythsaje]

7. Iran switching to the Euro? n/t

[megatherium]

10. Pandemic influenza. nt

[displacedtexan]

2. What will happen in DC when the Repukes leave office?

I have a feeling that incoming Dems (elected and their staffers)
won't pay the ridiculously high prices for housing.

Also, I don't think there will be as many Dem staffers as
there have been BushBots during this administration.

Will my house lose value?

[obxhead]

3. DC and the 50 mile radius....

It's hard to tell... I truly believe we've been riding a bubble for years, but in the end I believe the DC area will hold it's own with little loss of profit.

Recently from that area I would have to say you gotta be there for a while to understand that very special limited market...

[BlueManDude]

4. There will always be well-paying jobs there n/t

[1932]

5. I think the bubble will burst just as much as next guy, BUT...

...is this really the statistic that suggests it will? If 20% say orders are down, then 80% are saying they're the same or going up.

And even in good times, there must be 4% of builders who say orders are significantly down, which would be due to competition, mismanagement, chance, etc.

However, I'm always suspicious of surveys of business people who know that if they tell the truth, their stock price might drop. So maybe the real numbers are much worse, but if these are accurate numbers, they're not so alarming.

(I actually think that a better sign of trouble is all the insider sales with homebuilders -- I believe that if you check yahoo.finance, you'll have a hard time finding an iinsider who bought homebuilder stock in the last year.)

[NashVegas]

6. Depends on What a Market is Doing in General

If you've got an expanding city, like Nashville, there's still plenty of room for growth.

For me, personally that sucks. I have to find a new place to live and have been watching Criag's list. 75% of what's on there are remodeled apartments or homes with "luxury" cosmetic materials that don't do me jack.

[niallmac]

8. I thought we were talking about Bushy.

But I see by 'Bubble Prick' you refer to the housing market. I stand on the sidelines and watch. I have no idea what holds this economy together.

[goforit]

9. roflmao!!!

[gristy]

11. 1 in 5?

A survey recently conducted by the National Association of Home Builders of its members found one in 5 reporting more cancellations than six months ago, with 4 percent of the overall group saying the increase in cancellations has been significant.

So that would mean... 3... 4 carry the 2 , um... 4 in 5, yes that's it, 4 in 5 have seen no change or a decrease in cancellations.

What's the agenda here?


(edit for clarity)

[OrangeCountyDemocrat]

12. The Point Is...

The 1 in 5 who see the decrease in orders, Did Not Exist until recently. I'm sure that until last year, 5 out of 5 would say there was no decrease. Now only 4 in 5 say that, while the other 20% reports a decrease.

The big deal is that if this continues, pretty soon 2 in 5 will be reporting a decrease, and so on. It takes awhile for people to realize what's going on. The situation is only going to get worse for housing prices. Or better, if you think that the market is too overvalued, and you're not concerned if prices drop.

[gristy]

13. Well, I understand your point, but one flaw is that you simply don't know

that "until last year, 5 out of 5 would say there was no decrease", and the article provides no clue either.

[Misunderestimator]

14. Good point... and tricky wording of the article.

Written as if to incite fear. You do have to wonder about the agenda.

[joeunderdog]

15. "Besides the increased cancellations, new signed contracts fell 21%."

It's just one aspect of the broader decline.

The banks have overextended credit for housing and some big interest loans are starting to balloon. Now, these same banks are tightening up with the new credit card law. Wages are dropping and jobs are going on permanent vacation.

Who will pay for all the McMansions?

We live in the Boston area and are renting, and my wife is fighting me to buy now. We saved AT LEAST $50K on the market decline last year and will save more if we wait one more year. Our rent is about $15K. Since we will be putting down a large chunk of cash towards the house, the interest deduction doesn't make up for all that lost ground. And not paying interest for 15 or 30 years on the extra $100K will more than make up for interest rate hikes. (I don't buy that whole real estate line.)

Stay on the sidelines a little bit longer.

[TexasLawyer]

22. Why the 1 in 5 might be important

from the same article...

<snip>

But Seiders and others say a big concern is a factor not cited on the survey, the fear that cancellations are being driven by real estate investors who were ordering new homes with the intention of selling them quickly in a hot real estate market. And Seiders said many of the 72 percent of those surveyed not yet reporting an increase in cancellations are already worried.

Experts believe that the home buyer intending to live in a home is reluctant to cancel an order, even if the market seems to have softened. But an investor-buyer who more closely follows the local real estate market is more likely to cancel an order, even if they lose some deposit money, if they believe that the local market prices have fallen enough that walking away is more cost effective than buying and selling the home.

The flight of investor-buyers from the housing market and the increased cancellations could therefore push real estate prices lower in different markets.

"If you've overbuilt the market and sales get cancelled, you have to do something with the homes," said Seiders. "The incentives we're seeing builders offering are clearly designed to support prices and stop cancellations."
<snip>

[Jamison]

16. I can see why this is happening.

I don't know anyone who can afford these new homes they are putting up. They seem to build nothing but expensive ($400,000+) Mc Mansions anyway. In my apartment complex there is a chiropractor who says he makes right around $100,000 a year & he says he's going to just renew his lease at our apartment complex b/c he still can't afford a home.

[HockeyMom]

18. $400,000+ is for EXISTING homes here,

say around 50 years old? Try $700,000 to $900,000 for NEW construction. Certainly not McMansons either; 3 or 4 bedrooms with maybe a quarter acre.

[Jamison]

20. Well, I'm in the midwest.

Our housing market is not nearly insane as it is where you're at in New York. Incomes are quite a bit lower here too I'd say.

[Baclava]

17. No prick here - my home went up another $30K this year...

Doubled in price the last two years.

I am getting a cash out urge though...like a lot of people around.

[reprobate]

19. I'd say that if the speculators are leaving the market, that bodes ill

for anyone hoping to profit from their home if they buy now. I'd expect that any new purchases will be showing a loss if they sell in the future. Of course, this depends on the particular market, but if speculators are leaving as the article suggests, it could spread nationwide as the banks start to lose money.

[dysfunctional press]

21. There's still LOTS of building going on in chicago...

corner gas stations are turning into 4 story condo buildings all over the place.

[SoCalDem]

23. Right on schedule..

The last bastion of middle class "security" is being dislodged..

But don't worry..there are lots of rich people who will gladly pay you 60 cents on on the dollar for your house when you have to sell..