REALITY CHECK: US BROKERS SAY HOME RESALE MARKET IS SLOWING
---Pentup Demand Drying Up As Inventories Rise; Market More Balanced --Home Prices Stabilizing As Buyers Resist High Prices
By Gary Rosenberger
NEW YORK (MktNews) - U.S. real estate brokers report signs of a slowing in the home resale market, as rising inventories come into balance with demand -- and buyers are resisting overpriced homes.
Despite the slowing, there are locations where the market is as overheated as ever -- primarily due to a lack of inventory that brings multiple offerings and bidding wars to a boil, they say.
The slowdown has not been accompanied by a decline in housing prices -- which, if anything, are either stabilizing or continue to rise at a modest rate.
The head of the nation's largest real-estate firm sees a definite slowing of very recent vintage that he sees as a function of higher mortgage rates and a shrinking buyer pool.
"Things have slowed down dramatically in the last two to four weeks," said Daryl Jesperson, president of Denver-based RE/MAX.
"Interest rates are one percentage point higher than they were at the start of the year -- that's a 10% increase, and that can cause a significant impact on people's payments," he said.
"There has also been a tremendous amount of pentup demand that has been eaten into significantly," he added. "Chances are that if you bought a home three to five years ago, you're not going to be in the market today."
Jesperson said inventories are growing, bringing supply and demand into balance again.
"We're still far away from a buyer's market -- but we're seeing a market that is more balanced between buyers and sellers," he said.
He argues that, despite "the down market," prices should continue to rise "a little ahead of inflation."
"We see pockets of greater appreciation," he said, citing New York City as one such market. But he added that Manhattan real estate was lagging the rest of the nation and continues to "catch up."
He said his own company will continue to grow next year, a result not of a strong market but of productivity improvements, entrance into new markets, and market share taken from competitor.
Despite the evident slowdown, Jesperson sounds no alarms about the direction of the domestic economy.
"The underpinnings are still good for real estate," he said. "You have historically low interest rates, growing family formation, first generation immigrants buying homes, Generation Xers starting families, couples purchasing homes with dual incomes, and unemployment is low."
Local real-estate brokers are confirming a moderate slowdown in the making.
"It's a little bit slower but not a whole lot," said Janet Londahl-Smidt at ERA Douglass REALTORS in Montvale, New Jersey. "Other realtors also say it's slowing. But things were so intense that even with a little slowdown, it's still very busy market."
She added that prices appear to have stabilized even with "so little inventory out there."
"Prices are not going up any more -- but a lot of what drove prices up in the first place was artificial because so many people bid up each other," she said.
She added that higher interest rates probably have not been a big factor as "it really wasn't enough of a change to have an impact."
"I go back to 19% interest rates, so I think it's silly to worry about it," she said.
She still spots fairly strong demand for houses -- "except on days when the stock market drops, because that's where people pull their money from."
Londahl-Smidt said part of the problem is seasonal and she won't draw a final conclusion about the current state of the market until January, "which is usually a very busy time."
A San Diego broker said her market is slowing and is being further stymied by a lack of product.
"We've been feeling it since July -- although it's just a tad slower," said Sharon Bythewood, a broker for the Bythewood Group, associated with Prudential California Realty.
"The problem is that there's no inventory and buyers are resisting the high prices," Bythewood said.
"Homes are so expensive that a lot of people are saying they won't just settle for anything and still pay such a high price," she said.
She does not blame higher interest rates for the slowdown.
"I've been in this business for 25 years -- and in our community whenever we had an interest rate hike, it just got people off the fence and buying," Bythewood said.
She finds the lack of housing stock surprising in light of generous new tax laws allowing people to keep up to $500,000 capital gains on the resale of their primary residence.
Charlie Gerretson, president of Gerretson Realty in Denver, has also noticed a slowing in his market.
"I think it's slowing a little, especially in the higher end stuff," Gerretson said. "There's still tremendous demand for condos and properties under $160,000 for the first-time buyer."
The problem for higher-end homes is over-pricing. "A lot of sellers have gotten really greedy," he said. In addition, "there's been so much building of half million dollar homes in Denver that it saturated the market."
But other markets remain hot and with no signs of slowing.
There was a brief slowdown in Manhattan in June, but things picked up again in July and stayed ablaze ever since, said Joanne Douglas, a Corcoran Group broker based in Manhattan.
"I've had two days off since July and I had to cancel my August vacation," she said.
In Manhattan, a lack of inventory continues to set the stage for bidding wars, she said.
"Right now, if you're looking for a classic six-room on the Upper East Side, between $700,000 and $1 million, I have just eight available," she said.
She has been shunting people downtown to converted lofts in Tribeca, where space still sells for well over one million dollars.
"I have 40 lofts available down there, at least 30 of which are in the higher (million dollar plus) range," she said.
Douglas added that bidding wars in Manhattan are down -- not so much because of decreased demand but because more brokers and sellers are agreeing to comply with a more orderly sales process.
She added that demand is as firm as ever, particularly from Wall Street, where press reports indicate that the number of million dollar bonuses this year will double from where they were last year.
"New York City is also full of young Internet people, it amazes me to see how people are coming to me at such a young age," Douglas said. "They want a million dollars more? It doesn't matter. It's monopoly money to them."
She sees no connection between a bad day at the stock market and the demand for luxury housing. "I was around in 1987 and the crash wasn't reflected in real-estate prices until 1991," she said.
Another difference is that in the '80s, there was a vast amount of co-op conversions and new residential construction geared toward young, single people -- creating "an endless supply" of one-bedroom apartments that made the city vulnerable to a downturn, she said.
Today there is no equivalent supply of two- and three-bedroom apartments that are in such hot demand. "By mid-January we'll be up to our eyeballs with buyers and we won't know what to do with them. A lot of brokers don't return buyers' calls anymore."
A suburban Chicago broker sees no end to his robust market.
"We're doing great, in fact we're doing a little better than we did last year," said Coleman Joyce, sales associate at Baird & Warner Residential Inc. in Evanston, Illinois.
"Prices are up 5% to 10% over last year, and we're still getting multiple bids -- there's been no decline in demand," he said.
He added that an inventory shortage brings out three or four buyers for whatever properties come on the market.
"They have to pre-qualify and have no mortgage contingencies," he said. "We advise our clients to offer the list price, if it's reasonable, or they don't stand a chance."
The National Association of Realtors releases October existing home sales data on Monday, November 29 at 10 a.m. EST.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S. economy. |
