March brings two articles on problems in the housing market. Sales are dropping, inventories are rising but prices are more sticky.
Existing-Home Sales Fall Again; Consumer Confidence Wanes
March 1, 2006
Sales of existing homes fell in January for the fifth straight month, and the inventory of unsold homes rose, providing more evidence of weakening in the housing market.
At the same time, a closely watched gauge of consumer confidence declined last month, driven lower by a drop in expectations for the economy over the next six months. Nevertheless, a separate government report showed that economic expansion wasn't as sluggish in late 2005 as initially thought.
The National Association of Realtors said sales of existing homes, which account for about 80% of the residential market, fell 2.8% from December to an annual rate of 6.56 million units. While prices were unchanged from December, the number of unsold homes increased 2.4% to 2.91 million, a 5.3-month supply that is the largest in almost eight years.
Compared with a year ago, the annual pace recorded in January was 5.2% slower, prices were up 11.6% and the supply of unsold homes jumped 43.2%. The recent trends indicate that the balance of power in the housing market, which clearly tipped in favor of sellers over the last few years as home values soared, is gradually shifting to buyers.
Condominium sales plummeted 10.6% from December, and the average sales price fell to $216,900 from $225,200 but was still 5.5% higher than a year ago. Sales of single-family homes slipped 1.5%, but the average price increased to $210,500, a 13.1% gain over the past year.
This article is a bit of a personal experience, ie anecdote, but I think it is illustrative nonetheless. There is also a nice table of 'overvalued' locations and a bunch of advice on what to look for in a market and the age old, rent-vs-buy debate.
Back to Reality
As vacation-home markets cool, would-be buyers should take a sober look at the economics of ownership
March 27, 2006
The home grew in value at supersonic speed even while the sale was in escrow. Judging from sales of comparable units, in the five months between my purchase offer and my first mortgage payment, my beach place appreciated by more than $150,000, a gain of more than 66%. It had taken more than five years for my primary home in the Washington, D.C., suburbs to grow two-thirds in value. At the end of 2005, the median price of a single-family home in Naples reached $367,100, a 36% gain over the year before, almost three times the national appreciation rate. I felt like I'd won a palm-fringed lottery.
But there are clear signs that the tide is turning in Naples. Inventory levels now are four times as high as they were a year ago, local real-estate agents say, largely because nervous investors are trying to cash out their gains before rising mortgage interest rates topple the market. "Big price reduction" ads are starting to pop up in the thick weekly real-estate sections of the Naples Daily News. Worse, at the end of 2005 Naples was 96.3% overvalued -- based on historical norms for home prices, household income, population density and other factors -- according to a quarterly analysis of 299 housing markets by Boston-based research company Global Insight Inc. and Cleveland financial holding company National City Corp. That made it the most overvalued housing market in the country.
As recently as the end of 2003, Mr. de Kaser says, only seven towns were considered extremely overvalued -- 30% or more out of line. Now 71 are, representing 42% of all of the housing value in the country. That shouldn't matter to people who are buying in an overvalued spot for the long term, he says, but it should matter if you plan to sell within a few years. "It's absolutely not the time to take risks," he says.
Housing markets take a long time to change from boom to bust, because homeowners often are loath to accept that things have changed. A home can linger for months on the market before a seller finally realizes that he isn't going to get the same price that his neighbor did during last summer's price peak.
