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Thursday, November 23, 2006

"A Welcomed Correction"



A welcomed correction

The real estate market is off in formerly red-hot cities such as Phoenix, where sales have cooled 31 percent from the second quarter of last year, and Miami, where they’ve cooled 23 percent. Time on market in Phoenix is now 53 days, more than double what it was a year ago. Prices in many of those markets are still up, though, in some cases by double-digit percentages. But in the not-too-distant future, they should start falling—and that’s not a bad thing.

Certainly no one wants to see price adjustments dipping into negative territory—as they already are for condos in many markets that were seeing boom times a year ago—but we need cooling prices today to give buyers a chance to get back into the market.

Unlike previous housing slowdowns, which have come on the heels of broader economic weakness accompanied by job losses and rising interest rates, today’s slowdown comes amid an economy that continues to chug along at a respectable pace. The GDP stood at around 2.5 percent in the second quarter of this year. Continuing solid spending by consumers and businesses, steady government spending, a recovering stock market, and strong corporate profits are behind the steady growth.

Not surprisingly in such an environment, many metro areas are creating jobs, not shedding them. In Los Angeles, for example, more than 60,000 jobs were created over the past 12 months, even though the time that homes spent on the market there jumped from 34 to 54 days. In Dallas some 90,000 jobs have been added and time on market has dipped, from 67 to 65 days.

And in any case, sales remain on a growth curve in a good one-third of the country, largely in areas that didn’t fully participate in the boom of the past five years. In Boise, Idaho, time on market has dropped from 57 to 43 days over the past 12 months, and in Salt Lake City, sales have been strong and price appreciation has more than doubled.

The explanation for this seeming anomaly lies as much in the psychology of buyers as in their pocketbooks. This is a slowdown caused by high home prices and wavering confidence. Sales aren’t cooling because there are no buyers in the market; they’re cooling because buyers are waiting for prices to ease. I’m confident that once prices ease, investors and households will be back.

Lereah is senior vice president and chief economist for the NATIONAL ASSOCIATION OF REALTORS®.

Housing slowdown? Not in Alaska. Quarterly existing-home sales were up nearly 49 percent in this year’s second quarter compared with second quarter 2005. Many other states that never got red-hot during the boom over the past five years are also posting sales growth.

Business Confidence

Sellers hanging tight
Practitioners expect to see little change in seller traffic in the months ahead as buyers continue to wait on the sidelines. Projections for seller traffic are only a little below what they were a year ago, but buyer traffic projections remain down considerably. Practitioner confidence was surveyed in August and looks ahead six months.

Results are based on 449 responses to 3,000 surveys sent to large and small real estate offices. The survey asks practitioners to indicate whether conditions are strong (100 points), moderate (50), or weak (0). Responses are averaged to derive results.

Home Sales

Easing continues
A drop in NAR’s leading home sale indicator points to a continuation in the slowdown practitioners have seen in existing-home sales. Total existing-home sales, which include single-family houses, townhomes, condominiums, and co-ops, eased in July by 4.1 percent to a seasonally adjusted annual rate of 6.33 million units from a pace of 6.60 million* in June. The July pending home sales index, which was down 7 percent to 105.6 from 113.5 in June, suggests more cooling is on the way.

*Revised from the figure reported in the September issue.
†Seasonally adjusted annual rate, which is the actual rate of sales for the month, multiplied by 12 and adjusted for seasonal sales differences.

Find current economic data at REALTOR.org/research.
This article was published on: 10/01/2006


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