Shelter in a Storm: Housing Market Expected to Stabilize

For many residential real estate markets in the U.S., this year started with an advantage to sellers and ended with buyers holding the upper hand. But, unlike some people had expected, the switch didn't follow the deafening "pop" of a massive real estate bubble. That spells good news for both buyers and sellers in 2007. As markets return to balance, prices moderate and if interest rates remain subdued, sales begin to edge higher. Many markets saw slower home price increases and a build-up of inventory in 2006, much to the dismay of optimistic sellers. While speculators and investors who many argue are partially responsible for the massive housing boom tried to exit the market, buyers began waiting out the correction to get the best prices, causing a drop in home sales.

In many areas, however, the correction wasn't as harsh as some had feared. In fact, the year as a whole might even have been described as "healthy" if the country's perspective hadn't been skewed by the boom of the past few years. One of the bright spots interpreted increasing rates as a signal that the real estate party was coming to an end; now, with the 30-year fixed-rate mortgage averaging just above 6% and a lot of inventory on the market, it's not a bad time to buy. It does appear that this period of correction may be soon drawing to a close. Inventory appears to be topping off, monthly declines in home sales seems to leveling and mortgage puchase applications appear flat.

In San Diego, on the hottest markets during the boom, is seeing evidence of the stabilization in the local market. October and November turned out to be good months for sales. Prices are becoming more realistic as long as interest rates hold steady 2007 should be a really good year. But many markets aren't completely out of the woods yet. Only those who need to sell their homes are doing so; less committed sellers are holding off if they can. Some buyers aren't even looking at properties that are priced high. In this housing correction, economic fundamentals a poor job market, for example often isn't to blame. In fact, areas with strong job markets including Florida, Washington D.C., Nevada, Arizona and California are experiencing the largest price adjustments. Buyers got tired of paying high prices. Sellers got greedy, prompting stubborn ones who wouldn't budge on price to watch their homes languish without offers. Nationally, NAR forecasts the number of existing home sales this year will be about 8.6% lower than the 2005 level; next year, existing home sales will be 1% lower than this year's level. New home sales should be 17.7% lower than last year; the group anticipates that the number of new home sales will slide an additional 9.4% in 2007. Even in the midst of a downturn, 2006 will be the third best year on record for home sales. But the high inventory has had an effect on the industry especially home builders. The Commerce Department reported that housing starts reached a six year low in October. November's statistics, however, showed a 6.7% rise in starts. Housing starts are expected to bottom out in the first quarter of 2007. Prices under pressure concerning prices, consider the Federal Housing Finance Board's telling report released last month: In October, the average single-family home purchase price was down from October 2005's average price and the first time since 1992 - 1993 that the October-to-October average actually decreased instead of increased.

As the market started cooling, price cuts as well as additional incentives; have helped inspire the sales that did take place and began the process of reducing inventory. Looking ahead as long as interest rates stay modest, many markets should continue to soften a bit into next year and then improve modestly. More than one economist is predicting that mortgage rates won't sharply spike upward in the near future. NAR projects the the 30-year fixed-rate mortgage to average 6.3% in the fourth quarter, rising to 6.5% by next spring. The Mortgage Bankers Association also is projecting a modest rise through 2008. For perspective, remember that people thought an 8% rate was a deal in 2000. Nationally, home prices should increase slightly next year, according to NAR. The group figures that the national median existing home price should increase about 1.4% for all of 2006 and increase another 1% next year. Finally, as most real estate professionals stress, there are definite financial rewards in real estate for those with a long term plan, despite the valleys that inevitably pop up. People who intend to live in their homes for at least several years can weather most markets.

Source: RISAMEDIA