Is real estate still a good investment?
Ask the Pro: David Lereah
Chief Economist, National Association of Realtors
Newsweek
Dec. 12, 2005 issue - New-home sales hit a record high in October, but mortgage rates rose, existing-home sales fell and home builders turned pessimistic. TIP SHEET's Linda Stern asked Lereah to identify that hissing sound.
NEWSWEEK: So, was this a bubble? Will it burst?
David Lereah: A balloon is probably a better image. Many of our nation's hot housing markets are balloons that have expanded. As housing activity slows, the air will come out. Most housing markets will experience a soft landing.
What do you expect home prices to look like a year and five years from now?
I am projecting a 5.5 percent price appreciation next year compared with the eyebrow-raising 12.5 percent appreciation this year. The housing markets will return to normalcy, with appreciation in the 4 to 6 percent range.
What happens if mortgage rates rise?
Rising mortgage rates will likely slow housing activity. I am projecting a 5 percent drop in [total] home sales next year.
Where are the most and least vulnerable markets?
Markets most vulnerable to price softening possess a high concentration of variable-rate mortgage loans, including high-risk interest-only loans. San Diego and San Francisco are good examples. The least vulnerable are those with a low concentration of variable-rate loans and relatively low median prices, such as Houston, Detroit and Buffalo.
How can I evaluate my own community's prices?
If home prices are growing much more rapidly than incomes in your community, I would raise a yellow flag.
Is this a good time to sell my house if I want to get the best possible sale price?
For the past four years, the hot housing markets have been seller's markets. Sellers would list their home and buyers would line up and offer multiple bids. Those days are fading. If you don't have to sell, then don't. If you hold on to your property long enough, it always goes up in value.
Given quick sales and high home prices, are 6 percent real-estate commissions fair?
Competition is fierce. The average commission is about 5 percent. Consumers have the choice to use discount brokers and pay much lower commissions than the traditional agent. You get what you pay for.
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© 2005 Newsweek, Inc. |
