2006 Real Estate Trends: National

The National Marketif they don't get the price they want. Developers have
The latest report on third-quarter home prices,to drop prices to move inventory. Inventories rising
released in November by the National Association ofSupplies of new homes are way up, to nearly 500,000
Realtors, showed continued strength. But increasinglyunits, from 350,000 a few months ago. "That's an
there are signs that prices have reached a plateau. Ofall-time high for new homes," says DeKaser. The
147 markets tracked, 69 had gains from a year ago ofhigher the inventory, the more likely prices will fall. Sell
more than 10 percent -- only six metro areastimes are up Houses are sitting on the market longer.
experienced declines. But from the second quarter toNew homes now take about 4.1 months to sell and
the third quarter, the national median home price roseexisting homes 4.7; both figures are up substantially.
to $215,900, up just 3.8 percent. That contrasts with aWhat to expectIn a recent survey, NAR members
10.4 percent jump in the prior quarter. And more andsay they predict home prices to rise only 5 percent in
more leading indicators are pointing to a slowdown. Inthe next 12 months. Nearly half of the realtors predict
Boston, real-estate investor Matthew Martinez reportsprices will rise less than five percent and 6.4 percent
recently having spoken to five condo converters.actually expect prices to fall. "You can't expect
"They all said the party was over," Martinez said.Indouble-digit price increases to go on forever," said
Florida, Elena Filipa, vice president of the CorcoronWalter Molony, spokesman for NAR. "We're seeing a
Group in West Palm, said "We've leveled off. I wouldmarket in transition in which there'll be an easing of
say prices will go up this year, but not as fast as theyprice increases in the future." While DeKaser expects
have." None of this surprises the many economistsa slowdown, he predicts an "orderly transition" for the
who have been waiting for a downturn. Richardmost part, with some exceptions. "There will be busts
DeKaser, chief economist for mortgage bankerin some markets," he said. "Mostly, we'll come out of it
National City, has been reluctant to call the top, butunscathed." For the most part, DeKaser doesn't
thinks it has finally passed.envision losses on that scale. He thinks home prices will
"We're coming down the other side of the mountain,"decline 1.7 percent during the fourth quarter of 2005
said DeKaser.and stay almost flat all the way through 2007. But
The signs include: Builder pessimism The buildershistory shows that some over-valued markets could
DeKaser surveys are less optimistic than they werefare much worse.
even a few months ago. Separately, one leadingMolony points out that the most severe drops in
builder, Pennsylvania-based Toll Brothers, announcedreal-estate prices are usually triggered by an underlying
last week that expected demand for 2006 would beeconomic crisis. After oil prices went into a six-year
down, resulting in moderating price increases anddecline in the late 1970s, housing prices in oil cities
fewer sales. New-home sales declining DeKaser alsoexperienced steep drops. In Oklahoma City, prices
notes that the number of new homes sold have fallenplummeted 26 percent in real dollars from 1983 to 1988.
sharply since peaking in July at an annual rate of 1.3With inflation, the "real" loss was more than 40 percent.
million units. DeKaser calls new-home sales (rather thanHouses in many oil patch cities are worth less in real
existing-home sales) the canary in the coal mine.dollars than they cost more than 20 years ago.Written
"Developers tend to be more sensitive to marketfor
conditions," he said. They have cash flow issues,By James Christensen
payrolls, and loans that put more pressure on them toReal Estate Expert and educator. Our training site
sell. Ordinary home sellers are often more selectiveoffers a valuable service to individuals looking to get
than developers, even taking properties off the marketinto the Real Estate industry.