Do Not Expect a Housing Boom in 2006!

Gary Kaltbaum
Do not expect a continued housing boom in 2006. Bah, humbug! Hey, don't blame me. It's not my fault. For the past few months, I have been telling anyone who would listen that there was an impending top in the housing market. It is now occurring. Prices across the country have stalled and inventories have been picking up. In some places, inventories have grown immensely. Here are my problems:

• When websites open up to help you flip condos, it is a sign of being late in the game.
• When colleges start teaching you how to flip condos, it is a sign of being late in the game.
• When your best buddy quits his job of twenty years to become a mortgage or real estate broker, it is a sign of being late in the game.

I have debated several people on FOX about what matters most when it comes to housing prices. I have been told it was wage gains, demographics and everything else under the sun. But no one wants to talk about PRICE. The last part of the equation is simply PRICE. Price is a controlling force for demand and eventually, prices that have gone too high... affect demand. Price is now starting to dictate policy as the melt-up has ended. The speculators are already running for the door as they now see the momentum waning. There is just no way the prices we have been seeing can stay up.

As inventories build up, prices must come down in order to move them — it's simply the law of supply and demand. What cannot be sold is always put on sale. This pullback ultimately feeds on itself...and since prices have gone so fast, the drop becomes much worse.

Lastly, there is one other problem that no one is talking about: construction costs. All the people who have bought pre-construction are in for a rude awakening. Construction prices are up over 25% in the past year. Already, I am seeing builders telling their pre-construction buyers that the prices they thought they had locked in are now going to be much higher. What happens when these buyers don't want to pay the higher price? That's right! More inventory, which again leads to lower prices.

I am in no way saying the end of the world is coming. I am just saying that we are going to see a pretty decent dip in prices over the next couple of years...and maybe worse. My simple motto is "do not be the last one in!" The biggest losses will come from the hottest areas. That's how it always works.

Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Gary Kaltbaum and the entire FNC business team.

Gary Kaltbaum is president of money management firm Kaltbaum & Associates. He can be heard nightly on his nationally syndicated radio show "Investors Edge" on over 50 radio stations. He is a regular on FNC's Business Block. Visit Kaltbaum's Corner on for more.