Posted on 09/08/2005 1:10:12 PM PDT by ex-Texan
WASHINGTON -- The nation's red-hot housing market may finally be nearing its peak, meaning the end of double- digit annual percentage price gains for homeowners and potential trouble for more recent purchasers who stretched to buy.
That's the assessment of economists, who concede they have been forecasting a cooldown in housing for some time only to be confounded as sales and prices continued to boom.
Sales have certainly been sizzling this year, putting the country on track for a fifth straight year of record purchases of new and existing homes.
Home prices have been surging as well. The government reported last week that prices jumped by 13.4 percent in the April-June quarter this year, compared with the same period a year ago, the biggest increase in 25 years. That is more than double the average annual price gains of 6 percent recorded in the past three decades.
Signs of a slowdown
But scattered among the statistics are some signs of a slowdown. In July, sales of existing homes fell by 2.6 percent even though the nationwide median price rose to a record $218,000.
Homes in some areas are staying on the market longer before they sell and the Mortgage Bankers Association reports that its index of demand for home mortgages now stands 11 percent below a June peak.
And none other than Federal Reserve Chairman Alan Green-span recently said that "the housing boom will inevitably simmer down" with prices slowing and possibly even falling.
The issue of how much of a slowdown will occur and whether home prices will fall or just not rise at double-digit rates will depend to large extent on the course of interest rates in coming months.
"I think what we have in store is a slow deflating of the housing bubble, not a bursting of the bubble," said Mark Zandi, chief economist at Economy. com.
"But if mortgage rates rise more sharply than I am expecting, then the downturn in housing could be more severe."
The devastation from Hurricane Katrina could turn out to help the housing industry, mainly through falling interest rates. Investors pushed rates lower this week in anticipation that Katrina and the resulting surge in energy prices will act as a drag on economic growth and could persuade the Federal Reserve to pause in its 14-month campaign to push rates higher. As a result, rates on 30-year mortgages dipped to 5.71 percent, down from a high this year of 6.04 percent set in late March.
David Seiders, chief economist for the National Association of Home Builders, said rebuilding from Katrina's devastation probably will not have much effect on the overall housing market since residential building permits for all of Louisiana and Mississippi last year amounted to just 1.8 percent of the national total.
But analysts are forecasting that housing sales will begin to decline from record levels by the end of this year and into 2006. The slowing sales pace is expected to end the price gains the country has seen.
Overvalued locales
Richard DeKaser, chief economist at National City Corp. in Cleveland, said he believes 53 metropolitan areas, representing 31 percent of the country's housing market, were "extremely overvalued and confront a high risk of a future price correction."
And what might that price correction look like? DeKaser said over the past 20 years, 64 cities have seen home price declines of 10 percent or more over a period of two years. But all of those declines occurred along with a weak overall economy, something not present now.
But if rising energy prices spread into more widespread inflation pressures and the Fed feels it needs to raise interest rates more quickly, then analysts said housing could be in for a rougher landing.
Those most vulnerable in such a situation would be homeowners who took advantage of the growing popularity of various types of new mortgage products such as interest-only loans. They allow buyers to pay only interest initially while charging a lower interest rate that remains fixed for a certain period, often the first three years of the loan.
The problem comes when the introductory period ends. Then holders of these loans are faced with a double-payment shock. The interest rate they must pay is likely to rise and they will have to make not only interest payments but also begin paying back the principal.
Homeowners with already stretched finances may find themselves unable to make the new monthly payments, forcing them either to sell their homes or default on their mortgages. Either development would dump more supply into a slowing market and thus further depress prices.
But many analysts don't believe that scenario will come into play to any significant extent unless the economy seriously weakens. They note that even with the growing popularity of interest-only loans and various other types of mortgages that feature low down payments, the number of loans going into delinquency has been falling.
Some see a slowdown in home sales as beneficial.
"If the frenzied buying levels off, the market will become more balanced between supply and demand" and help to ease price pressures, said Lawrence Yun, senior economist at the National Association of Realtors.
It's amazing how many people look at short term trends then conclude everything is hunky-dory.
>>I make a decent salary but I can't afford anything other than a dinky apartment conversion.
Sounds familiar. :( My friends and I here in NorCal are all in a similar situation. Well, except I don't have lots of family nearby, so I suppose that is not keeping me from moving.
But I don't miss Winter that is for sure.
Ug. You have it all wrong geezer, the housing market is unlimited, paying 50 times the value is normal and also "a good investment". The market can only go up, there is an unlimited number of people willing and able to buy $100,000 homes for $800,000.....just look at FR. No bubble here, I'm going out to buy a shanty in California as we type, some bonehead will pay a cool half million, just because the realtor's say so......
"The rats have lost their last blue state in the South."
Louisiana was not and is not a "blue" state. Like many southern states, Louisiana at the state level is controlled by Democrats. It's a habit of long standing, going back to Reconstruction.
But, don't confuse that with conservative political leanings, when it comes to voting in presidential elections. There are enough who voted Republican in 2004 to have carried the state for Bush, amazing though that may seem in light of the fiascoes of Blanco, Landrieu, Nagin and other Democrats.
New Orleans is not representative of the whole state, in other words.
The same applies to California, however, technically we are a blue state regardless of our Reagan history.
All I can say is San Diego never looked better.
Nope. She lost 800,000 votes. Each votes twice.
Why do we keep reading the same regurgitated quotes, quips and "facts". It's like one default "bubble" article which has the sentences rearranged in random order, and republished. I don't care what anyone thinks about the subject, but can we please just have some original research or reportage on the real estate market?
Doom and gloom sells papers, gets viewers. They pander
to the lowest denominator for attracting attention.
The newspapers should be brought up on charges for
destroying trees for no apparent purpose.
The trick is to not wait too long before the interest rates get high again.
I wish we could have bought a couple years ago.
Sigh. Water under the bridge.
Looks like some are pushing for a one year moratorium for Katrina victims: http://www.mercurynews.com/mld/mercurynews/12583955.htm
Not really fair for people who are hit by future disasters, though.
If both parties were unemployed, they would be able to file, still, since they would be under the median income. I think house prices are too much in some areas and the bubble might burst. In other areas, where they are more modest, I think they will be fine.
Where are the 53 overpriced metropolitan areas?
>>I was born and raised in Southern California
Ah, I'm more of a wandering gypsy myself. Though other than CT (where I grew up), I've lived in NorCal the longest. A stable job is a nice change of pace from moving every 3-6 months which I was doing in my last career.
There is a cognitive dissonance involved with Conservatives who don't want to see the end of the housing boom and all that it may entail politically.
Better said, now is a good time to sell!
Doesn't the new federal bankruptcy law change all that?
A week ago Wednesday, there were 3000 homes for sale in Baton Rouge. Every one of them sold by Friday last week. People there are now accepting offers $10,000 higher than their listing price -- something totally unknown there. Baton Rouge used to be one of the places where you could get a good-quality sub $90,000 3/2/2 house. Not anymore.
Somewhat. You must make less than the median income for your area to declare chapter 7. If both are unemployed, that would be the case. If not, they would need to declare chapter 13 (reorg of debts), and would be screwed.
I'm just guessing, but perhaps you are noticing the direct inflationary impact of speculators investing in Baton Rouge? Perhaps wealthy investors are betting that homes will be in high demand in your area because of Katrina? But nobody listens to me, anyway. I'm just a retired geezer living in Oregon.
This looks interesting: http://scoop.agonist.org/story/2005/9/14/201912/760
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