Skip to comments.Housing Boom Fading, Leading Real Estate Economist Says
Posted on 10/31/2005 11:28:13 AM PST by ex-Texan
SAN FRANCISCO, (KRT) - A combination of higher interest rates and years of rising prices could soon take some air out of the hot U.S. housing market.
"The boom is showing some signs of tiring," David Lereah, chief economist with the National Association of Realtors, said Friday. "We are looking at about a 4 percent drop in home sales next year.
"We are projecting a significant drop in the price appreciation pace," Lereah said.
But even though the velocity of the housing market will subside, "we are looking for a soft landing," he told real estate agents from across the country who are meeting in San Francisco.
Economic forecasts have been mixed in recent months, but Lereah is the latest high-profile housing-sector economist to forecast a decline in housing.
David Seiders, chief economist of the National Association of Home Builders, said recently that the housing market is "topping out."
The Realtors association is forecasting that home appreciation will slow from a nationwide average of more than 12 percent this year to only about 5 percent in 2005. In hot markets, the falloff could be more pronounced, Lereah said.
"Some markets are more susceptible to interest rate risks and shock," he said. "I cannot guarantee that there will be no hard landings."
Cities including Las Vegas; Orlando, Fla.; Phoenix and Washington, D.C., are on the Realtors' list of areas that have seen the biggest home price increases in the last three years. Markets like Dallas; Detroit; Austin, Texas; Houston and Denver have remained cool.
"The country is really unbalanced when it comes to the price of a home," Lereah said. "The boom has really discriminated across America."
Many cities are already transitioning from a sellers' market to a buyers' market. And the time it takes to sell a house is increasing in many cities.
"Eventually that seller will have to revise his expectations downward," Lereah said. "Instead of getting 20 percent appreciation in their home they will have to get 5 percent."
Even with the forecast decline in sales next year, housing activity remains at a very high level. And Lereah said the market is fundamentally sound.
"In the real estate market, there is not hard evidence we have bubbles waiting to burst," he said.
But higher interest rates alone will cause a softening in home sales, economists agree.
"Mortgage rates are going up, but they will still be below 7 percent," Lereah said.
While still low by historic standards, he said that mortgage rates approaching 7 percent "could be more troublesome" for some of areas of the country.
The increased use of adjustable-rate mortgages and so-called "exotic" home loans has made some homeowners more vulnerable to higher interest rates. Adjustable-rate loans make up about 30 percent of the mortgage market, Lereah said.
"The biggest risk I see right now in California and other parts of the U.S. is the element of risk introduced by adjustable-rate mortgages and interest-only loans and negative amortization loans," he said.
"When it comes to these exotic loans _ even though it may slow home sales a bit _ I'd like to see stricter guidelines so we can slow housing a bit so we can have a soft landing."
Lereah said among the real threats to the continued health of the housing market are proposals in Washington to cut tax deductions for home mortgage interest and property taxes.
"In my opinion it's terrible timing - it's almost irresponsible," he said. "That would do severe damage to a lot of the local markets across the nation.
"We are looking at probably a 10 to 15 percent drop in home prices" if the proposals become reality.
This is because Geo Bush is expanding the federal government like there's no tomorrow.
It won't crash but you will have accept less than last spring unless you want it to sit on the market. At this point you have about 25k listings to compete with. By late winter that might be down a bit, but not much. I would get the house on the market early next year or even december.
Inflation is startign to heat up. Except in extremely overvalued markets where price appreciation has been off the charts most markets will be flat or experience a modest decline.
It won't be a collapse like when the .com bubble burst though the press will treat it as such.
Has anyone noticed that the realestate markets where pricing has taken complete leave of its moorings are always liberal bastions ?
Yep, the doom and gloom Freepers have always had a hard time with investments doing well. I'm glad that my three properties in the D.C. area have doubled. I'll take that and a 15% drop that lasts a couple of years any day...
Doom and gloomers, keep on hiding your cash under your mattresses and we'll see who does better...
Yep, and I'm dead square in the middle of one of them. It has a lot to do with liberal land use policy. They limit the supply yet demand stays high. Prices skyrocket. Also, they get more in taxes from corporate land than they pay out. So they allow way more businesses to locate than the housing market can accommodate. Jobs need people - people need houses - houses are not there - prices go WAY up...
Not in Seattle.
Geography plus the land management legislation equals no end in sight for spiraling upward real estate prices. And as long as Californians are leaving their state with wheelbarrows full of cash to invest in "cheap" Seattle real estate, there's no end in sight.
"Won't happen here". I hear that from everybody everywhere. Even people in the middle of nowhere who say their prices didn't rise much so they can't fall. But take a look at inventory, in No VA it has more than doubled even though many people are moving into this area. But the newcomers can't soak up a 30k supply of listings. There are 45k new condos scheduled in the next 3 years, and condos currently are break-even year-over-year taking into account commissions. Take a comprehensive look around and you will see it CAN happen anywhere.
Ahhhhhh.... Refreshing to see an extreme liberal on FR (are you Algore? John Kerry?)! Amazing that you will actually be glad if and when people lose on their investments. A perfect democrat - hoping for people to be hurt, hoping for bad news...
Aint that the damned truth. When I bought in 2001, there were chicken littles screaming the same thing, the crash was at hand...anyone buying now is going to get slaughtered yadda yadda...meanwhile, 4 years later, here I am with a 30 yr fixed at 5.5% and up by 50% (200% over the $80k down), I am so glad I didn't listen to those fools back then.
We sold our condo 3 weeks ago. It was on the market for 5 days.
Hopefully they don't back out and in the next week or two the hard landing hits around here and they don't take notice :D
Co-worker in Silicon valley area told me yesterday he sold a house - he said it was on the market for 7 days. So some houses are still moving out there.
So what is your house worth now?
Hey, how'd it work out in Seattle?
You are questioning me on a comment posted:
on Monday, October 31, 2005 4:13:59 PM
and what does MY personal situation have to do wth 4 year old commentary on inflated property values in the DC burbs?
Typical lib tactic- ignore the fact or nonfact (or satire) of the comment and attack the questioner’s personal background?
Bitter eh? I just like gloating about how right I was.
Nice call. It is fun to read these threads. It’s like the Twilight Zone episode where a group of old people say that playing “kick the can will make them young again”. But one old one tells them their full of it...you probably know the rest.
I should go look for an old gold thread since we know the price will never go over $550.
I love reading old posts, and this one hit the nail on the head. What is your next prediction, so I can "cash in, or cash out" whatever the case may be?
I agree it was an easy call, in hindsight. When the price of houses are 5 to 10 times incomes in many areas, something is going to crash - but when? In my case I shorted Countrywide and several other financials. It was NERVE-RACKING being about the only person in the country that actually read some of their loan documents (from a Florida county website) rather than simply taking the word of Orangeman.
I managed to ride Countrywide all the way down, and rode the others maybe 25% down, before getting cold feet and bailing. I kept my stock-picking record perfect...which was that every stock I ever ‘owned’ has gone down - but this time I got a nice car out of it. LOL.
I agree, with the feds printing money like mad, and with these sick attempts to prop up housing prices, it’s really hard to predict what’s next. Unfortunately people involved in gold don’t sit around like zombies, but instead are proactive and have already priced in inflation (i.e., when I started shorting, it was late 2006 - I could not believe that these stocks were still near their highs...WHAT IDIOTS were holding them?).
Now we have a new world, where every country is trying to kill their currency at the same time. The logical thing would be to buy land - but it is being inflated by low interest rates - so I wait for the bottom to fall out of the dollar.
Seriosuly though, I like BobL's land idea but other people are still snapping it up. Even better to buy land with something on it like timber or water. I "buy" collectable gold and silver by trading in junk and bulk precious metals. The prices are high, driven by the PM prices, but often a low multiple. I've got a stash of copper wire although I might end up using some of it myself. Buy a decent classic car if you like that sort of thing. Go to the flea market and buy things that look good; I buy unique colored glass pieces (vases, bowls, etc) but only if they look unique and colorful. I don't pretend that it's worth anything, but at buck or five bucks does that really matter?