Is real-estate market beginning to falter?

0 Comments | Insight on the News, Oct 15, 2002 | by Jamie Dettmer

Disappointing figures on homebuilding in August--new housing starts fell an unexpected 2.2 percent after dropping 2.8 percent a month earlier--had some analysts wondering if the real-estate market was running out of steam. Any sign of a slowdown in housing, one of the economy's mainstays during the 2001 slump and now through the still hesitant recovery, would be alarming.

Optimists say home-building activity remains at historically high levels and the strength of the housing sector has defied analysts' expectations during the last year. With mortgage rotes remaining in near-record-low territory, they predict that the housing market will remain healthy for the foreseeable future. "While construction activity eased a bit in August, the level is still quite solid, and permit requests are high enough to keep the sector in good shape for a while," said economist Joel Naroff.

Nationally, the housing market may remain healthy for some time, but there are distinct signs of potentially shaky regional bubbles. For example, Federal Reserve surveys show that the rate of delinquencies on mortgage loans is rising substantially faster in the South than elsewhere. Delinquencies and foreclosures in the Midwest are rising at a disturbing rate, way beyond normal cyclical economic downturns.

Analysts argue that the severe credit-delinquency problems in the South and Midwest reflect the longer lengths of recession both regions have experienced. Hardly surprising, therefore, that new housing starts fell 18.7 percent in the Midwest and 3.1 percent in the South.