For now, the change remains a far cry from the bursting bubble
that some have predicted.
For now. But the bubble is there, and a peaking creates a fatal
instability. The smart speculators must then leave the market,
which will turn the slow-down into a decline. A decline, combined
with soon-to-come interest hikes, will create a mortgage crisis
for millions of homeowners. As many are forced to put their houses
on the market, the decline will begin to turn into a market collapse -
the bursting bubble. Rumors of the death of this prediction are
prematurely exaggerated.
rkm
--------------------------------------------------------
http://www.nytimes.com/2005/10/04/realestate/04reals.html
October 4, 2005
Slowing Is Seen in Housing Prices in Hot Markets
By DAVID LEONHARDT and MOTOKO RICH
A real estate slowdown that began in a handful of cities this
summer has spread to almost every hot housing market in the
country, including New York.
More sellers are putting their homes on the market, houses are
selling less quickly and prices are no longer increasing as
rapidly as they were in the spring, according to local data
and interviews with brokers.
In Manhattan , the average sales price fell almost 13 percent
in the third quarter from the second quarter, according to a
widely followed report to be released today by Miller Samuel,
an appraisal firm, and Prudential Douglas Elliman, a real
estate firm. The amount of time it took to sell a home was
also up 30.4 percent over the same period.
In another sign that the housing market might have reached a
peak, executives at big home builders have sold almost $1
billion worth of company stock this year. [Page C1.]
Outside Washington, in Fairfax County, Va., the number of
homes on the market in August rose nearly 50 percent from
August 2004. In the Boston suburb of Brookline, Mass., where
many three-bedroom houses cost $1 million or more, the
inventory of homes for sale has increased in just the last few
weeks, said Chobee Hoy, a broker there.
For-sale listings have also swelled throughout California,
according to the California Association of Realtors. In the
San Francisco Bay area, they have increased 16 percent in the
last year, Coldwell Banker Residential Brokerage said.
"We are seeing a market in transition," Leslie Appleton-Young,
the association's chief economist, said.
Brokers said that some houses seemed to be on the market
longer because sellers priced them too high, assuming that
their value was still rising sharply. In other cases, people
who otherwise would have waited a year or two to sell their
homes - like empty nesters ready to move into smaller
quarters - had listed them now out of fear that prices would
soon fall.
The question remains whether all of this represents a
momentary cooling off of some overheated housing markets, or
it presages a more pronounced downturn that would end a
decade-long boom.
Some economists and commentators have for years predicted the
bursting of a real estate bubble, and previous slowdowns have
turned out to be relatively brief pauses before prices started
accelerating again.
But with mortgage rates now rising, the cost of gasoline
hovering at or near $3 a gallon and house prices in some areas
out of reach for many families, brokers and analysts said they
thought that this slowdown could be the real thing.
For now, the change remains a far cry from the bursting bubble
that some have predicted.
In Massachusetts, for example, the median house price remained
flat from July to August, and the median condominium price
fell only slightly, according to the Realtors' association
there. At the start of the year, prices had been rising at an
annual rate of more than 15 percent.
If anything, some brokers said, the recent slowdown meant a
return to a healthier, more sustainable market.
"What we had was abnormal," said Dottie Herman, chief
executive of Prudential Douglas Elliman. "People get used to
abnormal times and then when they're normal, they think
there's something wrong."
Alexander Shakhov, 47, listed his two-bedroom house in
Frederick, Md., an outer suburb of Washington, for $529,000 in
July, and it remained unsold for the rest of the summer. A
month ago, he reduced the price to $499,000 at the suggestion
of a broker. A week ago, Mr. Shakhov accepted an offer at the
lower price.
The market "is not as hot as the last two years," Mr. Shakhov,
a scientist at a biotechnology company, said, "but I'm pretty
happy."
He bought the house three years ago for $230,000. He now lives
in Cleveland, where he has bought a home that is nearly twice
as large as his Frederick house for less money.
The cooling off has forced both sellers and real estate agents
to begin changing their attitudes about residential property,
many said.
Houses that are priced too high are sometimes on the market
for weeks or months now, rather than fetching even more money
than their owners had imagined they could get.
In Manhattan, the average sales price of co-op and condominium
apartments fell 12.7 percent, to $1.15 million, in the three
months that ended on Sept. 30 compared with the second
quarter, according to the Prudential Douglas Elliman report.
The median sales price - which means half of homes sold for
more and half for less - fell 3.2 percent, to $750,000.
Still, the average sales price was 10 percent higher this
summer than it was a year earlier, according to the study.
Nationally, housing prices rose at the fastest rates since
1979 in the 12 months through August, the National Association
of Realtors said last week.
But the changes that real estate agents have seen in recent
weeks - increased inventories and longer sales times - have
often preceded market slowdowns in the past.
One reason properties are remaining on the market longer is
that sellers still expect to reap double-digit price
appreciation each year.
"What will slow this market down, and has slowed certain
segments of the market down, is overpricing," said Pamela
Liebman, chief executive of the Corcoran Group, a large real
estate firm in New York. "Back in the spring, there was such a
frenzy that very pedestrian product was drawing multiple
bids."
Some of today's sellers appear to be pricing their homes as if
the frenzy were continuing.
"Their neighbors sold their house when the market was red-hot,
and everybody thinks their house is better than their
neighbor's house," said Maggie Tomkiewicz, the president of
the Massachusetts Association of Realtors and a broker in
South Dartmouth. "But when the neighbor sold, there may not
have been five other houses on the market" in the area.
The slowdown has also jolted the thousands of people who have
become licensed brokers in the last few years. Until now, many
of them knew only galloping price appreciation.
"I've gotten these calls from newer agents saying: 'I've had
this property on the market for 60 to 90 days. What do I do?'"
related Buzz Mackintosh, an owner of Mackintosh Realtors in
Frederick, who has been selling houses for two decades. "And I
say, 'It's called, 'Reduce your price.' "
Indications of a slowdown have appeared before. Jonathan
Miller, president of Miller Samuel, said the last time that
average and median sales prices dropped below those the
previous quarter at the same time that inventories and sales
duration rose in Manhattan was in the fourth quarter of 2002.
But by the end of 2003, the market had come back.
An important difference now, though, is that mortgage rates
are creeping up, whereas previous comebacks have been fueled
by ever-lower rates.
On five-year adjustable-rate mortgages - a popular loan with a
fixed interest rate for the first five years - the initial
rate has risen to 5.59 percent on average, from 5.14 percent
in June, according to BankRate.com .
What is more, some mortgage lenders have started to tighten
credit standards, making it harder for buyers to get loans.
"Low interest rates and easy credit standards are just about
over," said Kenneth Rosen, chairman of the Fisher Center for
Real Estate and Urban Economics at the University of
California, Berkeley.
Ron Nixon, in New York, and Matt Richtel, in San Francisco,
contributed reporting for this article.
Copyright 2005 The New York Times Company
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