Housing Rolling Along 2

Quote from wareco:

Home Builders downgraded by Morgan Stanley to cautious from attractive.

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Morgan Stanley turns cautious on homebuilders

By Tomi Kilgore
Last Update: 7:15 AM ET Jun 15, 2006

NEW YORK (MarketWatch) -- Morgan Stanley downgraded the homebuilding sector to cautious from attractive, as order declines and increasing inventories are expected to lead to further negative earnings revisions. Analyst Robert Stevenson also downgraded KB Home (KBH :
KBH) and Pulte Corp. (PHM :
PHM ) to equal weight from overweight. Stevenson said he expects the group as a whole to trade down another 15% to 25%. "Our view is based on the current supply/demand imbalance, the increasing odds of further [Federal Reserve] rate increases, and the prospect that operating fundamentals could continue to get worse," Stevenson said. The Philadelphia Housing Index (HGX :
HGX ) closed Wednesday up $1.65 at $204.30, and has already lost 22% over the last 2 months. For KB Home, Stevenson cuts his stock price target to $32 from $80. The company is scheduled to report second-quarter results after Thursday's closing bell. Stevenson cut Lennar's price target to $31 from $66 and Pulte's target to $22 from $43. End of Story
 
I was selling RE in 1982 and well remember those high rates. I remember one sale to a military couple. Their VA loan had a rate of 14%. Not only that, but there were about 7 points (1pt=1% of loan). The lenders came up with all sorts of fees and points to make up the difference. All you were doing is discounting the cash flow with money (points) up front to make up the difference in interest. This was also about the time we were told in a meeting that the 30 year fixed rate was history, this is also when lenders added "non-assumable" clauses.

John is right on about affordability. Very few people have the wherewithall to pay cash for a house. I think there is pretty high premium in housing prices directly related to low int rates. As an appraiser I've even had the BUYER making the case for a higher (and unsupported, btw) value so they could get there loan. It's all about "how much down and how much are my payments" mentality.
 
The thing that I don't understand about this talk regarding affordability is that nobody seems to be mentioning that median home prices are also a component of affordability. Housing prices aren't high due to low interest rates alone, speculation is also playing a large factor.

When I look around at the property market where I live, I see many homes being sold at prices that are far in excess of a reasonable multiple of median incomes. I've also been noticing that advertisements for realtors sure have multiplied, seems that almost every bit of small signage (such as bus stop benches) I see is for a realtor. I would be interested to see some stats on number of realtors in Canada now vs. 4-5 years ago.
 
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