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The AP reports:
"The demographic story behind the housing market boom, as we always thought, was a giant hoax," wrote Merrill Lynch & Co.'s North American Economist, David Rosenberg, in a recent report.
Pretty strong words and:
"At no time in the past three decades has the gap between household formation and housing starts been as wide as it has been over the past 12 to 24 months," Rosenberg wrote. "We've become accustomed to hearing about how housing is in a new paradigm, that the fundamentals are sound, so on and so forth. But please, just don't tell me that the sector has managed to divorce itself from supply and demand realities."
He points out that the number of households in the group most likely to buy a home, 25- to 44-year-olds, fell 2 percent last year, a record decline.
Another indicator, unsold homes sitting on the market, also points down. The ratio of inventories to sales has been rising rapidly in recent months and now stands at its highest level since 1996, according to Wachovia Corp.
Rents provide more evidence of an imbalance between supply and demand. Since World War II ended, sale prices for homes have generally kept pace with the overall rate of inflation, and rents moved at the same pace. That hasn't been the case for the last eight years, according to the Center for Economic and Policy Research.
"There has been no significant increase in rents, which would be expected if the run-up in house prices were explained by the fundamentals of the housing market," Baker wrote.
Then, there's the problem of affordability. Affordability for first-time home buyers is the worst it has been in 20 years, which brings to mind an old parable about the stock market. A woman buys up a company's stock, driving up the price as she goes. Eventually, she tells her broker to sell.
You've been warned.
