Housing Market Slows
STEVE INSKEEP, host:
New figures show there was a bit of a housing boom last month. Builders took advantage of low interest rates and the warmest January on record, and new home construction rose to the highest level in more than three decades.
This has not stopped predictions of a housing slow-down, as NPR's Cheryl Corley reports.
CHERYL CORLEY reporting:
There's been a lot of talk about the housing market and a housing bubble, and whether or not housing sales and prices will pop. A more appropriate metaphor for what's been happening over the market over the past few years might sound something like this:
(Soundbite of engine revving)
CORLEY: The country's housing market has barreled along like a souped-up race car, smashing records for home sales. And now the question is what will 2006 bring?
Most economists say 2006 will still be a good year for the housing sector. Increases in home sales and prices aren't expected to crash, but the frenzied road race is over. The housing market...
(Soundbite of screeching brakes)
CORLEY: Well, it's not exactly screeching to a halt. It's more like tapping on the brakes. Michael Carliner, an economist with the National Association of Home Builders, says this year expect something a little calmer and more balanced.
Mr. MICHAEL CARLINER (Economist): We do expect to see things slow down, with housing starts and new home sales down by about six or seven percent for 2006. But that would still leave things about equal to 2004, and one of the best years ever.
CORLEY: In 2004, existing home sales totaled nearly 6.8 million, and new home sales, 1.2 million. The reason for the slow-down, according to Carliner and other economists, is a hike in mortgage rates. On average, 6.25 percent for a 30-year conventional fixed mortgage in recent days. Add to that a surge in the number of homes on the market, and lofty prices.
There are conflicting reports about where weaknesses will occur. Paul Ferley, an economist with Chicago-based Harris Bank, says all the talk about a housing bubble may not be overblown. He says there are some housing markets in the West, like southern California and Las Vegas, where bubble market positions have taken hold, and are the most vulnerable as mortgage rates start to rise.
He says, the situation is worth monitoring.
Mr. PAUL FERLEY (Economist, Harris Bank): What we're looking out for as the mortgage rates rise, do we get a slowing in house prices as we would expect? If that starts playing out, then I think, sort of, concerns about housing markets coming crashing down will likely not play out.
CORLEY: Economist Michael Carliner says, in parts of Florida and California, there's still more demand for housing than there is supply. He expects areas of the Midwest, especially places like Michigan, to see a housing slow-down.
Mr. CARLINER: All the signs are that we're going to see weaker employment growth, or no employment growth at all there, and that that's going to have an effect on demand.
CORLEY: Lots of areas might see some coolness in the market, but aren't experiencing any dramatic slowness. A bright spot in the Midwest is the Chicago area, which seems to be in line in what's happening nationally.
Ms. WENDY COBRIN (Realtor, Sudler Sotheby's International Realty, Chicago): This unit is 1550 square feet...
CORLEY: During a recent open house in downtown Chicago, Wendy Cobrin, a realtor with Sudler Sotheby's International Realty, was showing off a pricey two- bedroom condominium. She says the Chicago area building boom continues, but there is a slow-down, and it takes a little longer to get a condo off the market.
Ms. COBRIN: Well, a couple of years ago, the average market time might've been 50 days. This year, or 2005, maybe it was 73 days. So, a slight increase in market time, and that's because there's so much product.
CORLEY: Cobrin says that even though another 14,000 people are expected to buy homes in the area just south of Chicago's downtown this year, buyers who have more to choose from have become a bit more cautious, since the housing forecasts are so different.
Charles and Sarah Orlove(ph) say they're part of that cautious group. They were checking out the condo. They began their search for a new home just as the housing market started to get red hot. With their three children grown, gone, and raising their own families, the Orloves wanted to downsize and move from their four-bedroom home on Chicago's north side, to a downtown condo.
Shocked by the prices, the Orloves are waiting to find exactly what they want, but say they have seen changes in the housing industry.
Mr. CHARLES ORLOVE: Not a bubble bursting and falling apart, but we've seen it sort of slow down.
Mrs. SARAH ORLOVE: I think what they're doing is giving some concessions, maybe, in upgrades and maybe a garage space, things like that, rather than lowering the prices. And that's what some of the things that we've seen.
Mr. ORLOVE: Right.
CORLEY: The real estate market may gradually be shifting to more of a buyer's market, but sellers are still in the driver's seat. Economists say since sellers are accustomed to expecting exceptional returns on their investments, it may take awhile for them to compromise and realize that the housing market of 2006 is different from the recent boom years.
Cheryl Corley, NPR News, Chicago.
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