Posted on 06/27/2006 7:37:44 AM PDT by Hydroshock
WASHINGTON - Sales of existing homes fell for the third time in the past five months in May, with the weakness led by a big drop in demand in the Northeast.
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The National Association of Realtors reported Tuesday that sales of previously owned homes dropped by 1.2 percent in May to a seasonally adjusted annual rate of 6.67 million units.
The median price of the homes sold in May rose to $230,000 in May, up 6 percent from the same month a year ago. That represented a slowdown from huge double-digit price gains last year at the peak of the housing boom.
By region of the country, sales fell by the largest amount in the Northeast, a drop of 4.2 percent. Sales were down 3.8 percent in the Midwest.
Sales of existing homes managed to post small gains of 0.7 percent in the West and 0.4 percent in the South.
Analysts said this is a classic pattern for a cooling housing market with sales starting to lag under the impact of rising mortgage rates.
David Lereah, chief economist for the Realtors, said he expected sales to fall by 6.8 percent from last year's record pace. Sales had surged to record levels for five consecutive years as buyers responded to the lowest mortgage rates in four decades.
But with mortgage rates climbing steadily under the impact of credit tightening by the Federal Reserve, analysts look for housing to slow this year but not to crash.
The Realtors report showed that the number of homes still on the market at the end of May climbed to an all-time high for the month of 3.6 million units. The number of months it would take to exhaust that inventory level at the May sales pace would be 6.5 months, the highest level since May 1997.
Analysts said they believed that home sellers in many parts of the country will soon start to trim their asking prices in response to the rising level of unsold homes. That will help to boost sales.
Lereah said he expected a housing slowdown but not a housing collapse as a strong economy keeps demand for homes at a solid level.
"Right now we are on course for a soft-landing in housing," he said.
He said that 30-year mortgages, which are currently at 6.71 percent, could climb to 7 percent by the end of the year or even higher if the Fed goes farther in boosting interest rates than is currently expected.
Fed officials are expected to increase a key rate for a 17th time when they meet on Wednesday and Thursday.
I beg to differ, the key now is interest rates and priciple. A large number of the loans on houses (equity and mortgages) are now interest only and arms with teaser rates. Those rate are this year starting to reset in earnest. A situation only mad worse by the interest rate hikes from the fed. When these interest rates go house payments go up dramatically. Could you afford for you house payment to increase by 30% to 505 in one years? And if you could where in your family budget would you cut to pay for it?
Median price of homes rose 6% and sales rose in half the country and this is supposed to be bad news? Maybe for someone looking to get into the market for the first time. For those with homes we will take a rise of 6% in value every year till Kingdom come.
The homebuilders *must* sell their homes, hence the incentives &c noted in the earlier post which lead to a higher number of sales. A homeowner almost always has the option to wait for the price he or his realtor thinks he can get.
"Could you afford for you house payment to increase by 30% to 50% in one year?"
I wouldn't like it, but it wouldn't break the bank. I wouldn't have ever put myself in such a postion in the first place, though. I'm on a 15 year conventional, with payment less than $800.00 a month (3 br 2 ba, 1600 sf, 1.25 acre lot, 20 min from downtown), and am building another, nicer home on a lake, 2900 sf, 3 acre lot, 15 min from downtown), payment just under $2,000.00 a month for 30 year conventional, once it converts from construction to permanent. The "old" house I may keep for a rental, because rents are finally showing some life here, and I would have positive cash flow from it as best I can tell. The "new" house has taken forever to build, due to various issues with the builder and the county, but it has appreciated a surprising amount during this time. As a result, I'm not overly concerned. I could sell the lake house pretty rapidly, for considerably more than I have in it, if necessary, but I don't currently foresee any need to do so.
I assume you're still renting, in an expensive area, and hoping to help talk the market down so you can get in ... accurate?
ping
bump!
Then you are fortunate, most people I know it would be very difficult or break them. The majority of people live just a few paychecks from disaster.
LOL!
YOU get to reprint articles published by "Realtors", but I don't get to, because of "Realtor" "bias".
I guess you think the Realtors are "biased" because they are too stupid to see that a flood of panic-induced realty sales would generate lush commissions for them. LOL!
Anyway, here's a non-realtor source:
"NATIONAL HOUSING WOES THREATEN CONTINUED ECONOMIC GROWTH
UH Economist Smith Says Bayou City Better off During
“Housing Bust: How Soon? How Bad?”
HOUSTON, May 2, 2006 – Despite some optimistic predictions of a “soft landing” for the nation’s housing market, University of Houston economist Barton Smith says those prospects remain rather shaky.
There are a sufficient number of markets throughout the nation that are so vulnerable to a major market correction that it is unlikely that the U.S. economy as a whole will be able to escape some negative consequences. However, the most positive aspect of the current situation is that many urban markets, especially in the nation’s mid-section, will escape most of the direct blow and only feel the secondary impacts associated with the subsequent national economic slowdown.
FORTUNATELY, HOUSTON IS AMONG THIS LATTER GROUP."
During his annual real estate symposium, Smith pointed to excessively high prices and extremely low affordability in about a quarter of the nation’s home markets as well as a dangerous rise in sub-prime lending that is already producing high levels of foreclosures. In that regard, Houston is not exempt. Local foreclosures are three times higher than they were just three years ago...
As a part of his presentation, Smith contrasted the current environment with the last housing market correction of the early ’90s. The post correction spike in home prices looks very much the same. The environment of rising interest rates is also similar. But, he reminded his audience that the real estate bust of the early ’90s was spread across all types of real estate from residential to commercial to land. Today, he said, the only market in real jeopardy is the residential market. That ought to help minimize the spillover effects to the national economy as a whole. Nonetheless, the consumer, who accounts for three-quarters of aggregate demand in this country, is extremely vulnerable right now. A significant blow to the value of their most important asset would not be good for the national economic expansion that is already beginning to slow.
HOUSTON, ON THE OTHER HAND, WILL BE CUSHIONED BY A HOUSING MARKET THAT IS STILL VERY AFFORDABLE AND A REGIONAL ECONOMY THAT IS REAPING THE BENEFIT OF HIGH ENERGY PRICES..."
I should have mentioned: "Emphasis supplied".
But reading deeper into the report gives a more distressing picture. Houses in Portland are not selling even with prices greatly reduced. But if you quickly glanced at the headline, you wouldn't even have a clue.
An example from the Oregonian, hidden deep in the report: A family wanted to sell their three bedroom luxury home. They listed it late in December for $ $559,000. It has not sold yet. Six months on the market. The price has been reduced twice and now is $ $499,000. No bites yet. They changed real estate brokers hoping that will move the property. Maybe reducing the price below $ 400,000 might work . . .
Time to sell at the best price has already past says this report reading between the lines. Prices all across the country are falling. In Florida, median home prices took a big hit last month. Big discounts are very common. Would you believe discounts of $ 120,000? Yes? No? Well, houses are not selling without discounts. $ 20,000 to $ 150,000 discounts are common.
What is the point (and who is doing it) to keeping the market value up?
The way I have always seen free market work is, product doesn't sell = price comes down.
My neighborhood has been littered with for sale signs for about 6 months now.
Nothing is moving.
That's because people don't want to sell for less than what they owe or less than what they think they deserve. Do you think someone is making these people hold their price?
The market will force these people to lower their price if they really want to sell. It may take awhile, but it will happen eventually.
>>>Do you think someone is making these people hold their price?
Actually, I do think that now :)
I just read some interesting insight about professional flippers on they other running thread.
I will ping you if you are interested.
Flippers and amateur "investors" definitely drove up prices. However, the reason prices are not falling fast is not because of these people. Its because people 1) don't want to sell at a loss, or 2) they are ignorant of the market and think things are still going up.
And even if they were keeping prices high (and I reject the premise that they could do this on a massive scale), the market would eventually force them down. That's how these things work. At some point, when nobody is willing to buy at current prices, the sellers will have to reduce their prices. If on the other hand people keep paying their "high" prices, they will have no reason to lower their prices as the demand is still there. Either way, the market will have spoken.
Sounds like a rug merchant. The market price is the market price. SHEESSH.
>>>the market would eventually force them down. That's how these things work.
Agreed. I am taken aback by how long it is taken (seeing the peppering of for sale signs and tumble weeds in the neighborhood).
But you are right, the demand, or lack of, will adjust the values.
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