Deflating Mr. (housing) Bubble

There is more news on the weakening of the real estate market nationwide. The source is none other than the cheerleaders for capitalism, The Wall Street Journal

Caveat: I don't know whether or not the link will work unless you're a subcriber to CBS Marketwatch..In which case it will. I did sign out of MarketWatch, and was able to view the article.

Getting to the point, the one really strong pillar of the US economy has suffered for a couple of months now. I can't put my fingers on the data, but last month housing prices dropped an unexpectedly large amount - on the order of 5-6% if memory serves. Please do not rely on my memory for information. This article from The Boston Globe outlines what has been happening in most markets.

Getting back to the WSJ article:

[snip]...The pace of U.S. home sales is showing further signs of slowing, amid a widening gap between sellers' asking prices and the amount skittish buyers are prepared to offer, according to an industry survey, real-estate brokerage firms and housing economists.
Rising mortgage rates, higher energy costs, widespread talk about the risk of a "bubble" in housing and a surge in the number of homes on the market are among the factors behind the apparent slowdown. They have combined to make home shoppers more cautious, economists and real-estate brokers say. Buyers are taking their time to look for bargains, while many sellers have put unrealistically high price tags on their homes. That leads to a standoff, causing the number of sales to drop -- a classic ending to a period of unusually rapid house-price increases.

In a survey conducted last week, real-estate consulting firm Real Trends found that the number of home-purchase contracts signed last month dropped 8% from a year earlier at 48 of the nation's large real-estate brokerage firms. Those brokers responded to an email poll sent to 80 brokerage firms...[snip]

Is is a bubble or not? Trouble is, one can only ascertain that there was or was not a bubble after the fall-out - or lack thereof.

A bit more:

"There is a definite change" in supply and demand, says Jacelyn Botti, a senior vice president at Weichert Realtors, a big chain based in Morris Plains, N.J. Along much of the East Coast, she says, inventories of homes available for sale have bloated to a supply sufficient to last five to eight months at current sales rates, compared with three or four months a year ago.

With sales slowing, condominium developers in San Diego are appealing to buyers with an array of incentives, says Robert Griswold, owner of Griswold Real Estate Management. "The market has definitely turned," says Mr. Griswold, noting that fliers offering condo buyers a car were being handed out at a recent Rolling Stones concert. "When you see that kind of advertising and promotion, they are clearly getting desperate."

While many sellers of single-family homes are stubborn in resisting price cuts, some are starting to compromise. Ken Baris, president of Jordan Baris Inc., a real-estate brokerage in West Orange, N.J., says he received an email on Friday from a client suggesting that the firm reduce the price on his five-bedroom home to $829,900 from $849,900. The house has been sitting on the market for 90 days. "It was an unsolicited price adjustment," says Mr. Baris. "I haven't seen that in a very long time."

Until recently, unusually low interest rates and flexible lending standards were helping Americans keep paying more for houses, despite slow growth in personal income. But that's changing. The average rate on a 30-year fixed-rate mortgage is about 6.5%, the highest level in more than two years, according to HSH Associates in Pompton Plains, N.J. That's up from about 5.2% in June 2003, which was the lowest in more than four decades.

(much more at link)

The immutable laws of supply and demand appear to have reached a critical juncture. Throw in the slow steady raising of interest rates by the Federal Reserve System AKA "The Fed," and there is certainly the possibility of further depression of the housing market in the offing.

If the housing market falters dramatically, there is a distinct possibility that Bush may oversee a recession per term.

Would this be unprecedented? I think that it would be.

Is there an economic historian in the house?

Google provided little help in my search for the answer to this seemingly simple question.