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Are Home Sales Slowing? Calming of a Frenzied Market Entices Reluctant Buyers Aug. 21, 2000 (SmartPros) There are signs that the white-hot housing market may be cooling. Evidence also suggests that this slowdown is a real trend and not just a showstopper punctuated by ex-millionaires begging folks in the streets to purchase their mini-mansions. A good example of the relative pullback can be found in Silicon Valley's Atherton, Calif., a market to which The Wall Street Journal (July 7, 2000) pointed as an example of price hikes slowing from approximately 40 percent in the first quarter to between 25 percent and 30 percent at the end of the second quarter. The article noted that the number of higher-priced homes for sale in that area increased about fivefold. Naturally, this area's housing market has likely also suffered from the recent rockiness in the stock market, which heavily influences business cycles in Silicon Valley's high-tech firms.
No, what the market is experiencing is a gentle, not-unexpected slowdown in selected areas. And any calming of a frenzied market could serve to entice reluctant buyers out to play. Once they do, it is up to real estate professionals to show them just how to take advantage of opportunities in their region.
A Selective Slowdown
Nationally, the most recent statistics available have confirmed some sort of slowdown in home buying. According to USA Today (June 5), sales of new and existing homes have fallen about 6 percent compared with last year. The U.S. Commerce Department reported that monthly housing starts for single-family homes slid by 3 percent in June, and 1 percent from June 1999 levels. There was an 11 percent slide in June from last year in the rate that new-building permits were issued, a sign that fewer new homes will be constructed over the next several months. In addition, numbers from the National Association of Realtors (NAR) revealed that first-quarter median home prices dropped off in 37 cities, compared to the same period two years ago, during which only five cities displayed losses. Still, a closer look at regional numbers reveals a more complex picture. According to the U.S. Commerce Department, over the past year housing starts declined in the Northeast and Midwest, but gained in the South and West. While a stormy stock market has no doubt played a role in staying housing-price hikes (as it has in Atherton), the biggest influence on the housing slowdown has likely been the six hikes in interest rates by the Federal Reserve since June 1999. The result: According to the NAR, the average 30-year mortgage carried a rate of 8.09 percent as of July 13, a rise of more than one-half percent from a year ago.
What Lies Ahead
As for the future, most indicators forecast cooler weather ahead for home sales. The NAR's June numbers project that rising interest rates should continue to cause new and existing home sales to dim somewhat, though actual sales levels will remain "solid." At the same time, however, the consensus appears to be that overall home prices will rise, albeit at a minor rate. Most of those in agreement with this scenario point to the quickening pace of inflation (as a byproduct of rising rates) and a continued, overall tight housing inventory as the factors that will fuel any rising costs.
A Fleeting Opportunity?
With price hikes slowing but not disappearing in many markets, now may be the time for potential borrowers -- especially those new to the home market -- to make their moves before rates inch higher. For those still sheepish about committing to a new home, here are a few valuable nuggets of information.
It is true that there are no guarantees in the real estate market, but a client's new home is something he or she can depend on -- even if prices and rates go haywire elsewhere once the purchase is made. After all, some of the more dour statistics for the current market could translate into an excellent opportunity for those who may not otherwise make a move.
Please send your comments, questions and article proposals to information@smartpros.com. |
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