See story below for some more grist for the mill, found at realtor.com. If you want statistics on the national and regional housing markets, this is the source. No other entity has any way to keep track of housing sales.
(By the way, I'm not currently a dues-paying member of the National Assn. of Realtors, and I'm not plugging anything--just trying to help out with information.)
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Soaring Home Prices Spur Talk of a Bubble
Patrick Barta
RealEstateJournal.com
How high can they go?
In one of the strangest paradoxes of the current sluggish economy, home prices not only continue to go through the roof, but they appear to be accelerating.
A report released August 13 by the National Association of Realtors, which covers price changes in 125 metropolitan statistical areas, found that median prices of existing homes rose 6.4% to $146,900 during the second quarter of 2001 when compared with the same period a year earlier.
That was faster than the growth rate in the first quarter, when prices rose 4.6%. The price gains were widespread, with 34 metropolitan areas throughout the country posting double-digit price increases, far higher than usual. The most expensive market was San Francisco, with a median price of $483,600.
The report touched off another debate over how long home prices can rise in the face of a slowing economy.
The NAR's home-price report includes data from sales that date back as far as April, and some of the upward movement "could have worn off" since then, notes NAR Chief Economist David Lereah. Indeed, there is ample anecdotal evidence that sales, and prices, are cooling off in some areas.
Some of that showed through in the August 13 report. For example, although prices rose in many major California cities, including Sacramento, San Diego and Los Angeles, the number of sales in the state overall declined 8.7% during the 12-month period ending in June. Only one state, South Dakota, registered a larger statewide decline in sales. Meanwhile, the Washington, D.C., metropolitan area, which includes suburban Maryland and Virginia, posted a strong 18.6% price gain, the second strongest in the report. Yet sales in the city of Washington proper declined 5.6%.
Economists say there is often a lag between the time sales slow and prices cool off, because it sometimes takes a while for buyers and sellers to recognize that demand is sliding. Once they do, discounting often begins in earnest.
Even so, Mr. Lereah points out, there is little to suggest that the housing market is falling apart, and he is calling for the price increases to continue, albeit at a less dramatic pace, throughout the rest of the year. "The bottom line is that unemployment is just 4.5%, and that is not a dire economic situation," says Mr. Lereah. "As long as people have jobs and think they're going to have jobs, they're going to have the confidence to buy cars and houses."
Not everyone agrees with that optimistic assessment. Prices are now rising at such a clip that some economists are beginning to talk of the potential for a housing bubble, in which prices grow so fast that they ultimately crash, like the Nasdaq Stock Market did, leaving thousands of families with assets that are sinking in value.
Fred Sheehan, director of asset-allocation services at John Hancock Financial Services in Boston, is one of the naysayers. He says the increase in existing-home sales over the past several years is dramatic enough to raise concerns about a possible housing-market bubble, with some people buying homes simply to make money or to get in before prices go too high. "I see some of these houses around here, and these are really crummy houses, selling for $300,000 or $400,000," he says, adding, "I think people are just thinking ... they need to buy now, or else they won't be able to." But prices are heading toward a level "a lot farther beyond what people will pay, and I think [they're] going to fall quite a bit" in some areas, he says, especially Boston and New Jersey.
For now, at least, a handful of factors appear to be driving the market, some of which are tied to fundamentals in the economy, and some of which could be egging the market on more than it can sustain:
Low interest rates: Mortgage rates recently dropped to 7%, not far off their 30-year low of 6.49% in 1998, according to Freddie Mac, and well below last year's high of 8.64%. Those lower rates have made homes seem more affordable, despite the increase in prices. According to the NAR's "affordability index," an American family making the U.S. median income had at least 138.2% of the income needed to purchase a typical home in the second quarter, down a bit from the first quarter but extremely high by historical standards.
Tight supply: Unlike the 1980s, when builders added too many houses just as the economy fell into recession, builders this time appear to be holding their new construction in check, in part because it is tougher to find cheap land -- and get permits -- than before. The number of new homes for sale now is 7.4% lower than it was at the Nasdaq's peak in March 2000, according to Bridgewater Associates Inc.
Aggressive mortgage lending: Lenders have loosened credit standards in recent years, allowing borrowers with relatively high levels of debt to get loans. Borrowers can also make much smaller down payments, in some cases as little as 3%, compared with the more customary 10% to 20% of years past. These easier terms have especially helped immigrants and low-income families, greatly expanding the pool of available buyers and therefore boosting demand for homes.
A shift in investment strategies: Many Americans, spooked by the stock market over the past year, appear to be shifting money into residential real estate. One indication is that average down payments have actually increased in the past two years, suggesting that many of the buyers are people with large sums of money that they previously would have put into the stock market. In June, according to Economy.com, the average down payment was $34,700, up from $30,500 last June and $28,700 in June 1999. |
