Two articles from February presage a peak in the single family housing market. For a while now, talk has shifted from whether there will be a "slowdown" to what shape it will take, gradual or sudden.
Finding a House Gets Easier
Inventories Rise Sharply In Many Major Markets As Some Buyers Hang Back
February 8, 2006
With the key spring selling season about to get under way, the inventory of homes on the market is climbing sharply in a number of major cities.
It is the latest sign that the balance of power between buyers and sellers is shifting as the once red-hot housing market continues to cool. The slowdown is affecting both existing homes and new homes. Yesterday, the nation's largest builder of luxury homes, Toll Brothers Inc., reported a 29% decline in new orders in its first quarter, which ended Jan. 31. That was below many analysts' expectations and prompted a sharp selloff in Toll Brothers stock. And Ryland Group Inc., a Calabasas, Calif., builder that sells homes in a wide range of prices, recently announced that new orders declined 4.7% for its quarter ended Dec. 31.
Nationwide, there were 2.8 million existing houses and condominiums on the market at year end, according to the National Association of Realtors. That is down slightly from November's 2.9 million listings, but up 26% from a year earlier. Adjusted for seasonal variations, inventories have climbed 38% since April, according to Goldman Sachs Chief U.S. Economist Jan Hatzius, the largest eight-month increase on record.
The changing climate is particularly noticeable in once-hot markets such as Miami, Phoenix and Washington, D.C., and in areas such as Detroit, where price increases have been modest but the job market is weak. Some brokers report that traffic has increased in recent weeks. But with plenty of properties to choose from, buyers have become more selective.
In Detroit, sales fell nearly 10% in the fourth quarter and inventories climbed amid uncertainty about auto-industry layoffs. To stimulate demand, Real Estate One, a Detroit brokerage firm, has been running a companywide "Bonu$ Homes" promotion in which sellers agree to provide $2,000 to $10,000 toward buyer closing costs on purchases made before April 15.
"The creativity to sell homes is coming back," says Dan Elsea, president of brokerage services at Real Estate One. "We haven't needed it for years."
Economists and real-estate experts are watching the inventory numbers closely for signs of whether the housing market is poised for a soft landing -- or something worse. When inventories are tight, buyers competing for scarce properties bid up prices. As the supply of homes on the market increases, price increases slow and buyers gain negotiating power.
With the number of listings rising and the pace of sales slowing, there is now a 5.1-month supply of existing homes on the market, based on the current rate of sales, according to the National Association of Realtors, compared with a record low of 3.8 months in January 2005. Historically, a 5.5-to-six-month supply has been considered a balanced market, says NAR Chief Economist David Lereah. But with the Internet making shopping for a home easier, he says, it is no longer clear just what a balanced market is.
Another uncertainty: how much of the increase in inventories is due to speculators looking to sell, and whether they will be more willing to cut prices as the market cools. Investors accounted for 9.5% of mortgages to buy homes through October, but their share of purchases peaked during the first half of the year, according to LoanPerformance, a unit of First American Corp. Brokers in markets such as Phoenix and South Florida say they've seen an increase in investor-owned properties for sale.
The supply of unoccupied condominiums is also climbing in many areas. In New York's Westchester County, the number of condos on the market jumped to 617 at the end of 2005 from 397 a year earlier. In the Boston area, the number of condos listed at the end of January was 5,114, up from 2,876 a year earlier. In the Washington, D.C., metro area, new-home inventory climbed by more than 900% to 2, 413 in the fourth quarter over the same period a year earlier, largely because of the completion of several condo projects, according to Hanley Wood.
Housing Market Signals Slowdown
New-Home Sales Decline To Slowest Pace in a Year, And Unsold Supply Jumps
February 28, 2006
New-home sales fell in January and the number of unsold homes on the market rose to nearly a 10-year high, signaling continued cooling in the housing market.
The Census Bureau said sales of new single-family homes dropped 5% last month to an annual rate of 1.23 million units, the slowest pace in a year. Slower sales and rising inventories pushed the number of unsold homes up 2.5% in January to 528,000, a 5.2-month supply. That is the highest level of unsold new homes on the market in nearly a decade.
Many economists were surprised by the January decline, having anticipated that unseasonably warm weather last month would boost sales, much as it had stimulated big jumps in housing starts, retail sales and construction. Instead, sales in the Northeast, South and Midwest all dropped more than 10% from December, overshadowing an 11.3% rise in the West. Rising interest rates and lower levels of mortgage applications in recent weeks have further darkened the outlook.
Still, January's sales rate was 3.3% higher than a year ago, and yesterday's report was viewed as the latest evidence that the housing market is undergoing a gradual slowdown rather than a sharp freefall.
