www.bankrate.com/brm/news/mortgages/20040902a1.asp
com Some of the country's hottest real estate markets have been doused in cold water in the last few months. Home prices have even fallen in a few places where prices had been rising at double-digit rates. But experts say there's nothing to worry about: There is no bubble about to burst. On the other hand, homeowners might not feel comforted that a price decline of 20 percent isn't necessarily considered a sign of a burst housing-market bubble. In the last two or three years, home prices have been rising at astonishing rates in some cities, especially on the coasts: in the east, Boston, Long Island, New York City, Baltimore, Washington and much of Florida; in the west, Southern California, especially Orange County. The undisputed champ isn't a coastal city but Las Vegas, where the median price of an existing home rose 524 percent in one year, from the second quarter of 2003 to the second quarter of 2004. Then, abruptly, over the spring and summer, the housing market in Las Vegas slowed down, and the same happened in Orange County and some other parts of California. Sales and prices continue to be strong on much of the East Coast. Buyers, sellers and journalists wonder if a dreaded bubble has popped, and if so, whether it can ripple eastward, like any trend that starts in California. Housing economists, Realtors and academics say no: There is no bubble, one hasn't burst, and all real estate markets are local and thus are insulated from what happens elsewhere. never will be," says David Lereah, chief economist for the National Association of Realtors. That leaves room for local housing bubbles, but Lereah sees no sure signs of those, either. Instead, say Lereah and other experts, prices in the suddenly cooler housing markets in California and Las Vegas are leveling off in response to local supply and demand, as well as a dash of buyer and seller psychology. What's the difference between a leveling-off and a burst bubble?
"It all has to do with how one defines a bubble," says Gary Painter, director of research for the University of Southern California's Lusk Center for Real Estate and an associate professor in the School of Policy, Planning and Development. "Most recently, when we talk about bubbles, we talk about the NASDAQ in 1999. That's a bubble bursting, where values are so out of line that it's all speculation." Hot housing markets aren't bubbles, Painter says, "because valuations have been pretty much in line with what economists call the fundamentals of demand -- low interest rates, very little supply -- and so when interest rates ticked down, that translated into a higher housing price."
And when interest rates ticked up early this summer, some markets in California -- Orange County, Palm Springs, Ventura, Monterey County, the northern wine country and the greater San Francisco Bay Area, including Silicon Valley -- hit the brakes. Sales and prices in all of those markets fell in July, compared to June. The same happened in a few markets in Florida, where prices had been zooming upward. The number of existing single-family homes sold in the West Palm Beach area fell 16 percent from June to July, and the median price dipped half a percentage point. In the state overall, sales fell 12 percent and the median price, 15 percent. Fewer houses there were sold in July than in June, but prices were up slightly.
Real Estate Adviser Steve McLinden Q What are the major pitfalls to avoid when having a new home constructed? A The bad news is the pitfalls are plenty and there's not quite enough space here to chronicle them all.
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