11 June 2006

Real Estate Bubble To Real Estate Crash | The Wall Street Examiner

Real Estate Bubble To Real Estate Crash | The Wall Street Examiner: "Both purchase mortgage and refi activity have been gradually downtrending since June 2005. Refis are hovering at their lowest levels in five years. Purchases have been dead in the water for over three months at their lowest levels in 3 ½ years. They are down 19% on a seasonally adjusted basis since peaking last June. Any further increase in mortgage rates is likely to lead to the total collapse of the housing market, which is already on its heels. Thirty year fixed rate mortgages were quoted around 6.66% on May 26, at the time of the weekly mortgage applications survey to which the above and following chart apply.

In addition to the problem of rising inventories, demand is tailing off. The National Association of Homebuilders conducts a survey of its members, of the traffic of prospective buyers. They report the data as a diffusion index on a scale of zero to 100. A reading of 50 means that an equal number of respondents are reporting good or very good traffic versus poor or very poor. The index is seasonally adjusted in order to remove seasonal influences from month to month comparison. This index has declined from a high of 55 in June and July 2005 to a reading of 32 in May 2006. Excluding a reading of 30 in the month following the 9/11 disaster in 2001, the current reading is the lowest reading since January of 2001. Readings of 41 or below have now persisted for six months. Sales contract volume is following a similar path."

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