CHICAGO – With housing construction soaring at near-record levels and prices for houses mushrooming at double-digit rates, the end of 2005 would seem like a serene moment for the real estate market.
Not so. The level of nervousness among participants seems nearly unprecedented. Daily warnings about a price “bubble” and fears that easy-money mortgages will soon be relegated to history have placed builders and realty agents on edge. Their forecasts for 2006, while far from gloomy, lack the optimism evident over most of the last decade.
That brings us to Tuesday’s report of November housing starts. Economist Lynn Reaser expects it to show a small dip, to an annual rate of 2 million units. That would be down only a tiny fraction from October but off about 10 percent from levels of late last winter.
“The housing market is past its peak, and sellers report they are not getting their asking prices,” said Reaser, of Bank of America’s investment strategies group in Boston. “Further, homes are remaining on the market longer.”
Construction continues to be propelled, however, by solid growth of payrolls and mortgage interest rates that remain historically low, she said.
“Milder than usual weather in November helped to lift construction activity and the market still is strong,” Reaser said. “But pockets of weakness are showing up in some cities, notably Miami, Boston, Las Vegas and San Diego.”
Barely over a month remains before Federal Reserve Chairman Alan Greenspan calls it a day. His replacement, Ben Bernanke, is waiting in the wings.
Fears that Bernanke will alter course at the central bank, by softening its stance on monetary policy, are misplaced, says Chicago banker Kenneth Skopec.
“Mr. Bernanke will sing from the same script and will closely follow Mr. Greenspan’s example,” said Skopec, of MB Financial Bank.
At this point, that likely means another rate hike, to 4.5 percent, in the Fed’s short-term lending barometer when Greenspan chairs his last meeting Jan. 31. And don’t be surprised if Bernanke engineers two additional rate hikes, bringing short-term rates to 5 percent before next summer.
The stock market is rushing headlong toward the end of a very flat year, defying analysts who said a sizable rise in equity prices was assured thanks to profits growing at double-digit rates. So far, the Dow Jones industrial average has risen a measly 1 percent since the beginning of 2005.
Some analysts complain that the bull market, which is in its fourth year, has grown long in the tooth and needs time to gather new strength.
Flossmoor, Ill., investment adviser Richard Evans says that “it certainly does not feel like it, but it is a bull market, to be sure.”
The strongest indicator for upcoming months, he says, is that stocks in the Dow Jones transportation average “are trading well above their 2000 highs.” Utility stocks, too, offer a bullish portent, he says.
Investors must be patient, Evans said, but “as prices continue to move higher, the advance will broaden.”
(c) 2005, Chicago Tribune.
Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/
Distributed by Knight Ridder/Tribune Information Services.
Comments are no longer available on this story