Hey! Stop that! I'm confused enough as it is. ;)
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.
I see houses of cards ready to collapse. It will affect everyone, in some way or another.
I'm so glad I'm in my last house. It's all paid for, now, with the proceeds of the sale of a vastly overvalued home in California used to buy this one.
I'm here. I'm staying. I'm not going to sell. I suppose I'll die in this house.
I'm out of the housing market forever.
Time cures all real estate investment mistakes, Although as you noted you have to be able to hold on long enough to make it work
How dare capitalists make money!!
We should take their money and give it to those that need it!!.
...Proud_USA_Repblican...
You might want to change your name.
Steel is still a problem.
We should take their money and give it to those that need it!!.
I never said that. /smackdown time
"I see houses of cards ready to collapse."
There are vast swathes of the country that haven't seen anything near 10% appreciation. Most of these areas have fairly decent economic conditions, too, such as where I am, Greensboro, NC. We've been muddling along with 3% or so a year since the late 90s, with only a slight jump to a projected 7% for the year for 2005. There's no bubble to burst here, because appreciation has been below average for the duration of all this cheap money. We were doing fairly well during the mid-late 90s with rates around 8%, so I just don't see the end of the real estate world due to that. This is true for just about all of so-called "Red State" America, other than Florida, and some coastal areas fueled by cash out refi money flowing into beachfront vacation homes.
Hey! Stop that! I'm confused enough as it is. ;)
Oh no! People in Washington DC metro area will have to live with 5% appreciation on their $650,000 colonials instead of 20% appreciation on their $250,000 colonials!
"People in Washington DC metro area will have to live with 5% appreciation on their $650,000 colonials instead of 20% appreciation on their $250,000 colonials!"
Head for the hills!!! What's funny is, they actually are heading for the hills. Areas of MD and WV that would have been sneered at as redneck backwaters even five years ago are really taking off.
Is this the same dude who said we will see a slow down last quarter when there was actually a 12% increase in new home sales?
When you live in an area with fairly anemic real estate inflation, while the rest of the country is percolating along at double digit raises, then it speaks to the wages being paid in that economy. Rising interest rates will mean that these lower income people will be even LESS able to afford the prices you have already. I agree, the amplitude of the shock is greatest at the center, but the ripples spread out eventually.
Let's not forget the "paper wealth" factor. Whether we're talking about values of tech stock portfolios, or home values, when people perceive themselves as suffering a loss, they spend less on everything. That affects essentially every segment of the economy. I just hope we can snap out of it by late 2007, or be prepared for President Rodham.
Somehow I doubt that commuting from Hagerstown and Gettysburg to Washington DC will appeal to many future job holders....! Idiots maybe.
Colonials in the DC area (esp Loudoun county) have been dropping since June. That was the peak. That said, there could always be a double top but not until 2007 at the earliest.
"Well, then, why should someone move to Greensboro, NC, when a lender overburdened with foreclosed homes (in other areas) is letting people walk into them with zero down, no closing costs, and even moving expenses?"
Oh, I don't know, job growth maybe? There are other factors at work, as to why some areas have not skyrocketed. There is very little to prevent new residential construction here, with readily available tracts of land. This tends to limit appreciation of existing housing to the rate of inflation, with new construction pulling existing up as costs increase. New will always trump existing, with the exception of the very close in, older "charming" neighborhoods built in the teens, 20s, 30s and 40s. Or, at least that's true here, and in Dallas and Atlanta and Memphis and Indianapolis and, and and.
"Somehow I doubt that commuting from Hagerstown and Gettysburg to Washington DC will appeal to many future job holders....! Idiots maybe."
You'll be right if a physical commute is an ongoing, daily requirement. I can envision that not being the case for all, at least not every single day.
Ok, maybe your part of the country is immune to the coming economic effects of the housing bubble slow leak. It could be, if those jobs don't depend on newly-poorer-feeling-people having to buy a product or service produced there. Maybe those jobs are all in government?
Most speculators aren't true capitalists, they are quite often just gamblers. Especially the people who get in late, and are hoping for one more round of fools to bail them out.
Capitalists take chances, of course, but they do so with a business plan that doesn't end with, "sell out at a profit before the market tanks."
BTTT
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.