The inventory of unsold homes is rising in many areas of the US, but the national foreclosure rate is low, around 1 per thousand or .1%. Is this enough to slow down the economy?

CNBC guest this morning, Richard Manoogian (Masco
Chairman & CEO) said internally they expect homebuilding to decline about 10% yr/yr in the back half of 2006; another 5-10% in 2007 (they have very good insight on this).

Are those numbers reflected in economic assumptions? I doubt it.

Foreclosures will increase if unemployment rises in a given market.

Interesting that an outsized number of jobs in this recovery have been real estate related... does that suggest that the areas with the 'hot' RE mkts (which saw the most speculative / aggressive financing) also captured the bulk of job growth?

If so, then a 15-20% decline in residential construction could have a meaningful impact on those particular markets- 1st through higher unsold inventory, 2nd through higher unemployment trends in those metro areas, 3rd through higher default rates as owners are forced to sell and move on.

MarkM- what is your perspective on where we are in this RE cycle?

Also, Manoogian is hoping the fed pauses... however if commodities don't respond to the slowing consumer he suspects that the fed will 'shock' the system with .50 hikes until they get the job done. Is he in the Kudlow circle as well?

I want to think the Fed will do so, Stockman.

However, with consumer and governmental debts at record levels, it is hard to imagine the Fed being willing to do so -- especially given the risk of creating a deflationary recession/depression. I believe that this is Bernanke's MAIN struggle: stop the inflationary machine in its tracks while shocking consumer sentiment/demand OR monetize debts and let commodities run.

This is why I believe a hedged portfolio is essential in such a time: long natural resources -- heaviest weightings to gold juniors; short credit bubble facilitators -- heaviest weightings in mortgage underwriters and insurers, especially those doing business in areas most affected by the housing bubble.

The national volume of home sales is not declining even though inventories are rising, so the real estate agents still have a job.

It appears that with your popularity you are now a victim of the Cramer Effect, where people you are attempting to teach that they should think for themselves act immediately upon any symbol that appears in your discussions as a "recommendation to buy/sell."

Soon, there will be an equally large contingent who fades your "recommendations", as has happened with Cramer, and you, Bill Cara, will get the blame for sub-par or 50% type performance of the people who follow these ideas.

I wonder how many people went immediately to their online broker and set up that allocation you discussed last week, the one with the 60% y/y gain, in spite of the fact that you had mentioned that a lot of those ETF's were sitting at higher than 70RSI readings, and they should probably wait.

Instead of placing the blame squarely where it belongs, on their own shoulders, they thought they could come to your site and blindly follow whatever it is your talking about that day, instead of doing what you have been preaching all along, which was for all of your students to think for themselves.

It's the same reason why the shelves at the book stores are filled with "how to's" and "get rich now" type books. The Cara Effect is just getting rolling. I see your site listed on a lot of blogrolls as I surf around the financial blogosphere.

Home sales are indeed slowing down, Alan, most sharply in key markets in the West, New England, and Florida. Some of the best work I've found tracking the data is at Calculated Risk (http://calculatedrisk.blogspot.com/).

Home builders have been getting creamed this year. Yet they continue to build as cancellation rates rise to historic norms and new orders drop (currently they are down about 20-30% YoY). They are also facing competition from former customers -- speculators who purchased homes as investments expecting prices to continue rising inexorably.

stockman-

In commercial real estate everyone is rushing to complete projects. But the retailers are DEFINITELY slowing things down. In non-bubble areas of the housing market, inventories are up but sellers are still firm in their prices.

Stockman,

I live in SW FL in one of those "overheated real estate markets", and I'm involved in the property management business. Prices are ratcheting down fairly significantly on existing homes, and to a lesser extent on new homes.

Ryland, Pulte, KBH, etc. held a fire sale about 6-8 weeks ago taking out full page, color ads in the real estate section of the local fish wrap. The big, national builders know when it's time to unload inventory, and they appeared to have done so en masse as those ads have disappeared.

I spend an inordinate amount of time each day attempting to ascertain the proper and prudent value of numerous properties in the real estate market where I live. As I have seen properties that were previously listed for $339K drop to $269K in a period of the last 4 months, it's a real challenge to determine what is "fair value."

It really depends on who the seller is, at what price they purchased, and what are their needs. To the extent that the sellers purchased several years ago at considerably lower prices, they will simply lower their price but still come out well financially. They won't be hurt too badly.

For the investors (flippers) who chased properties with interest only loans and 3/1 ARMS, they will fare worse.

In the market where I'm located, I get a sense that we're probably 3-6 months away from the absolute low in existing home prices. There are bargains beginning to show up in my market, but I have yet to see what we would call 'capitulation'. We're probably 2 rate hikes away from that occurring, IMO.

Thanks guys. You are 1 step ahead of me. I am reading yesterday's news where national home sales for Jan, Feb, and March are the same as last year. April sales are down 5.7% from April of last year which is significant. People living in the coastal areas are probably more acutely aware of this 1 month slowdown in sales since these are the "frothiest" areas of the bubble.

RE..all is well for now in the sunbelt area.....prices are still moving up....people still moving in from all over