Why Housing Could Spring a Leak

[Quetzal]

Why Housing Could Spring a Leak

It sure looked like good news: On Apr. 2, the government announced that a stunning 308,000 new jobs were created in March (economists were expecting only about 130,000). For the housing market, however, these tidings hit like a ton of bricks. Almost immediately, interest rates started rising, and housing stocks started falling.

KB Homes (NYSE:KBH - News) fell from $80.20 to $76.60 that day and to $75.27 the next (see BW Online, 4/5/04, "KB Home: Cyclical No Longer?"). D.H Horton (NYSE:DHI - News), Lennar (NYSE:LEN - News), and Centex (NYSE:CTX - News) all slumped an average of about 7% those two days before rebounding a bit on Apr. 6.

Are these stocks signaling potential weakness ahead for real estate? You bet they are. While housing experts point to myriad reasons why the real estate market will likely stay robust through 2004, the risk of a serious downturn in the next few years is clearly increasing -- particularly in areas of the country where home prices have risen the most.

"AN ATTRACTIVE ZONE." So far, the interest rate jumps have been moderate. Mortgage rates, both traditional 30-year and adjustable, remain way below their historical average of around 8%. But on Apr. 6, Bankrate.com's overnight survey of lenders showed the average rate on a 30-year-fixed mortgage spiked to 5.48%, up from 5.2% a week earlier.

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Why Housing Could Spring a Leak

[No Mandate Here.]

1. It has already slowed some here in PA

[On the Road]

2. I Keep Expecting It

but I've been expecting it for a couple of years. These trends always seem to last longer than they're suposed to. Meanwhile, single-family home prices have reached astronomical levels in the DC/MD/VA area, and even ticked up in depressed Baltimore.

It will happen. For one thing, mortgages are bumping up against the limits of affordability, even with the lowest interest rates in decades.

I will be poised to buy when it does.