July 2007 Market Update

Posted at 1:19 PM, Jul. 22, 2007

On Wednesday, July 18, 2007 the California Association Of Realtors reported that "builder confidence continues to erode and U.S housing permits, starts fall in June."

Jonathan R. Laing reported recently in Barron's that "far greater troubles await the subprime market in the next two years". This points to continuing tightening of credit, which will reduce demand for homes, and keep downward pressure on home prices. In a separate article, Ian Shepherdson reported in the same edition of Barron's that for historic norms to be reach home prices will have to fall at least another 25%.

Borrowing to buy an asset the may depreciate is enough to keep many people out of the market, according it Ian.

That is my experience as well. Since home ownership is most always a discretionary purchase, there has to be a strong incentive to buy. Otherwise, most potential first time buyers or move up buyers find in easier, financially and emotionally, to rent.

The Los Angeles Times recently reported that in the Inland Empire, rents are falling, due to the supply of rental homes on the market. This is unusual. One would expect an increasing number of renters to put upward pressure on rents. However, supply is increasing faster than demand for rentals even in a market with tighter credit that is forcing many first time buyers out of the market. This is not yet happening in Los Angeles as supply is still tight especially on the west side. Still, it is an unwelcome development in the California market.

Lastly, the Los Angeles Business Journal once again reported that volume is falling in Los Angeles County. This is troubling because portends deterioration in home prices.