www.usatoday.com/money/economy/housing/2005-11-01-real-estate-usat_x.htm
Overheated housing market is cooling By Adam Shell, USA TODAY Selling a house the past few years has been easy. Pick a buyer willin g to fork over more cash than you initially asked for.
While there's still a plentiful pipeline of home buyers looking to make a deal, finding one willing to make a split-secon d decision to buy and pay whatever it takes to get in the door is no lon ger a lock, real estate agents say. In what could signal a mood shift in the feverish real estate market, tal es of bidding wars and 30% annual price gains are quietly fading. Instead, there's nervous chatter about the recent increase in the number of homes for sale, sellers cutting their asking prices and builders wooi ng buyers with incentives. The reason: There are signs that the overheated market might finally be c ooling. The Commerce Department, for example, said sales of new homes in September fell shy of expectations, median prices declined 57%, and th e number of new homes for sale shot up to a record 493,000. Freddie Mac also said October mortgage applications seem to be "tapering off."
It's not just the megahot markets such as New York City, San Diego and Ph oenix showing stress. Softness is also being reported in condo-happy Las Vegas, the stalled auto capital of Detroit and Midwest college towns su ch as Madison, Wis. Most real estate agents and economists are not forecasting a real estate collapse, although some doomsayers say the bursting of the "bubble" is i nevitable. Adds California-based agent Toni Martinez: "More buyers want to sleep on it before making an offer." Richard DeKaser, chief economist at National City, says the five-year hou sing bull run peaked this summer. "What we will see is a dramatic slowin g in price appreciation," he says. Only a few, high-risk markets, he pre dicts, will experience price declines. Home sales there fell 47 % in September from year-earlier levels, and price appreciation slowed t o 38%, says DataQuick Information Systems. Despite the pullback, DataQu ick analyst John Karevoll describes the market as "stable" and "more nor mal." Dan Elsea, a Detroit Realtor, says it's common for sellers in the job-s tarved Motor City to reduce asking prices two, three or four times befor e signing a deal. Judi Keenholtz, CEO of Empire Realty, which serves San Francisco's East Bay, says desirable homes in good school districts that used to fetch e ight to 10 bids now get three or four. Angst among agents Signs of cooling have created angst among real estate agents. Much of the perceived softness must be kept in perspective, says J Lenno x Scott, a Seattle-based broker. What looks ominous i s less so considering fresh numbers are being compared with record highs . An existing home that sits on the market for four months is not uncommon when compared with long-term housing data, says National Association of Realtors (NAR) spokesman Walter Molony. A nationwide supply of homes tha t would take six months to sell is considered healthy. There is now a 4 7-month supply, up from 43 in May, the NAR says. Business is slowing, but not enough to create a true buyer's market. Yet, the recent inventory buildup could signal a shift from the years when s ellers could name their price, says Dean Baker, co-director of the Cente r for Economic and Policy Research, a Washington, DC-based think tank. "Suddenly, the expectations of many sellers are being dashed," he says. Part of the problem, Baker says, is that today's sellers are pricing thei r homes based on what comparable homes went for six months ago and tacki ng on an extra 10%. High-end properties and the more speculative, investor-driven condominium market are under the most pressure. In Miami-Dade and Palm Beach counties, 11,465 units are under construction, permits for an additional 14,500 have been OK'd and plans for 36,000 more have been announced. The pricier end of the market suffers more from sticker shock. "Homes in the $1 million to $2 million range in hot metro areas are more vulnerabl e," says O'Connor. Buyers become cautious To sell, homes have to be priced right. Many potential buyers, their conf idence shaken by high oil prices and hurricane fatigue, have turned caut ious. They're leery of overpaying amid predictions of a downturn. Freddie Mac says the average 3 0-year fixed-rate mortgage is 615%, up from 564% a year ago, making mo nthly payments less affordable. The average monthly mortgage payment in Southern California in September was $2,034; that's $30 below the inflat ion-adjusted April 1989 peak but up 50% from 2000, DataQuick says. In another subtle shift, many people looking to buy who a few months ago might have rushed to avoid paying higher prices are now waiting for pric es to fall. He wants to move, but is in no hurry to make a bid on the elegant Brooklyn brownstone he covets. He figu res if it drops once, it's likely to drop again. If that strategy becomes the norm, more sellers wil l lower their prices to lure buyers back into the market.
The big question, Haacke says, is whether this is a temporary pause or th e start of a longer-term downturn. Bubble theory proponents say it will end badly, with sharp price declines and intense financial pain like that investors suffered after the tech stock bubble burst in 2000. After analyzing soft landings in once-hot markets such as the United Kingdom and Australia, a report by ING Wholes ale Banking said the US housing market won't crash. The Mortgage Bankers Association expects price gains to slow to around 5% in 2006 as the rate on 30-year fixed-rate mortgages rises to 675% by y ear's end, still low by historical measures. Both bulls and bears have evidence to back up their predictions. Much b ut not all of current data show that sales volume and price gains are still healthy, suggesting no danger of an imminent collapse. September existing home sales came in at their second-best level ever, al though sales were boosted by heavy buying in the Gulf Coast region after Hurricane Katrina, the NAR says. In early October, the NAR said its "pe nding home sales index" set a record. If you compare more volatile month-to-month, or quarter-to-quarter, data, a slowdown appears to be underway. The best recent example: a report of a third-quarter 2005 slowdown in New York City. While confident real estate agents rule out a double-digit price downdraf t, such as the one Dallas saw in the early '80s, the risk of sizable pri ce drops can't be ruled out, a recent PMI study said. Its "Market Risk I ndex," based on an analysis of the 50 biggest markets, found a 22% chanc e of a price decline in the next two years.
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