A Bond Fund Looks at Housing

Posted by: Chris Palmeri on August 14, 2006

Pimco the big Newport Beach-based bond fund has been digging into the housing market for months now. No great surprises in their latest report. The market, they figure, “continues to slow every day but it is not falling off a cliff.” Homes prices will climb about 5% for the year, according to Pimco. The actual number of homes sold will decline. That’s due to the problem of affordability. Thanks to higher interest rates, the typical borrower taking out a 30 year mortage is paying 30% more per month. Couple that with the soaring price appreciation seen in the last few years and there are just fewer people able to afford a home. The biggest opportunity to pick up homes at lower prices will occur with homebuilders who are slashing prices and offering incentives to clear inventory. That’s due to a sea change in the ownership of home builders. In 1990 only one of the top 10 builders in California was a public company. Today, nine of the top 10 builders are. Publicly traded firms are under pressure to reduce inventory and maintain their balance sheets. One thing likely to continue though is homeowners refinancing. Pimco figures that over the last six years the housing boom has created $5 trillion more value in homes than mortgages have gone up, so there is plenty of equity for homeowners to borrow off of.

Reader Comments

Dave

August 20, 2006 1:35 AM

"Homes prices will climb about 5% for the year, according to Pimco."

LOL! Yes, the 10 buyers left are all pretty wealthy so the median price of the few homes sold might be higher than last year when there were 200 buyers in the market!

Sales volumes have dropped off a cliff during what is the traditionally busiest season. Defaults are exploding. The secondary markets may not survive the coming tusnami. Anyone holding MBS is losing sleep now, and will be broke by 2009.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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