Read it here first: Real Estate Begins to Cool

Friday, August 12, 2005 | 09:05 AM

As we noted in our commentary on Monday -- Real Estate Begins to Cool -- there are several signs that the most robust sector of the economy is finally chilling out a bit.

Today, a front page WSJ article has picked up the same meme:

"The number of homes available for sale has increased sharply in some of the nation's hottest real-estate markets -- one of several recent signs suggesting that air may be seeping out of the frenzied U.S. housing market.

Home prices have surged an average of about 50% in the U.S. in the last five years, largely thanks to the lowest mortgage interest rates in more than four decades and what has been a shortage of available homes in many markets. But some economists and housing-industry analysts believe supply is catching up with demand -- a trend that could cause home-price appreciation to slow down in the months ahead.

In San Diego County, for instance, where the median home price has more than doubled in the last five years, the number of homes listed for sale totaled 12,149 on July 8, more than twice the 5,995 available a year earlier, according to the San Diego Association of Realtors.

In northern Virginia, an area dominated by the fast-growing suburbs of Washington, inventories are up 26% from a year earlier. "Sales have slowed down for sure," says Tip Powers, president of Realty Direct Inc., Sterling, Va. He says home prices have flattened out and speculators are starting to shy away from the market because they no longer can count on quickly unloading properties at a profit.

A similar rise is being seen in Massachusetts, where home inventories are up 31%, according to officials of real-estate organizations there. Real-estate brokers say inventories also are up in such markets as Chicago, Las Vegas and Orlando."

Perhaps you are wondering why inventory has ticked up. Not surprisingly, there are many elements contributing to this:

Several factors point to a possible cooling of the market. Mortgage interest rates have been edging higher in recent weeks, raising the cost of purchasing a new home and knocking some potential buyers out of the market. The average rate for a 30-year fixed mortgage is 5.89%, said Freddie Mac, a mortgage-finance company, this week. That's up from 5.53% in late June.

In some markets, such as California and Florida, prices have surged past the ability of many people to afford a home. Additionally, banking regulators have begun to raise questions about whether mortgage lenders are being prudent enough -- which eventually could prompt some lenders to tighten credit standards.

In addition to Inventory, affordability, and mortgage rates, we noted other factors helping to identify the slow down: Prices paid (relative to asking) had slipped, and Homes were on the market longer. Lastly strong Condo sales typically occurs late in the RE cycle. That's on top of the anecdotal evidence coming form Real Estate agents.

Ironically, yesterday's WSJ piece on Econ blogs noted how "It's all about the 'memes . . . Those guys say it and about a week or two later, the guys on Wall Street pick it up." 

Apparently so . . .

>

Source:
Rise in Supply of Homes for Sale Suggests Market Could Be Cooling
By JAMES R. HAGERTY and KEMBA DUNHAM
Staff Reporters of THE WALL STREET JOURNAL
August 12, 2005; Page A1
http://online.wsj.com/article/0,,SB112381117394311632,00.html

Friday, August 12, 2005 | 09:05 AM | Permalink | Comments (25) | TrackBack (1)
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Comments

One of the top arguments for rising prices has been that land is getting scarce in many prime areas.
In the short term I agree but in the mid to long term term it's a bad argument.
One just has to look at a picture of Hong Kong in the 1800s and a recent one. When there is no more space, highrises mushroom. Nice expensive homes start to lose some value as they start to fall in the shade and lose their views.
And since real estate has gotten expensive we are being told to buy for the long term because we have to live somewhere!
Booming condos are a sign.

Posted by: Danielle | Aug 12, 2005 9:50:13 AM

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