Is the real estate party over? For many, 2005 was the year to celebrate like it was 1999.
Despite interest rates moving up nearly a full percentage point from 2004, adding nearly $100 a month to most homeowners' payments, housing sales reached new records for the fifth year in a row.
The National Association of Realtors had predicted that 2005 would be hot, but noone expected another record-setting year. However, recent reports suggest that sales are slowing, inventory is building, and the nation is about to experience a housing hangover.
According to a new analysis by Economy.com, one-third of the top 100 metropolitan markets will experience a significant downturn in 2006 and 2007, a few by as much as 12 percent over two years. That's a significant enough reduction to turn from a boom to a bust.
Las Vegas, Nevada, with a median priced home of $296,000, leads the list of decliners, along with California cities San Diego ($598,700,) Santa Ana ($683,300,) Riverside ($362,800,) and Los Angeles ($412,900.) In the northeast, Nassau-Suffolk counties are expected to diminish in growth. The states with the most declining house values will be in California, Florida, and Maryland.
The flip side of that dour prediction is that two-thirds of the market is going through the roof. This is known as the rolling boom, a phrase made popular by NAR chief economist David Lereah. When home sales get too expensive for homebuyers, they pull up stakes and go somewhere new. California homebuyers, for example, invested in nearly one-third of the new homes sold in Las Vegas last year, suggests the California Association of Realtors. Now housing gamblers are pulling out and moving to Texas, Arizona, Oklahoma and Arkansas looking for new opportunities.
San Antonio, Texas, where the median home price is $129,900, leads the top 100 with over 15 percent growth by 2007 in real estate values, followed by Jacksonville, Florida ($164,700,) El Paso ($107,100,) Little Rock ($115,700,) Baton Rouge, ($133,800,) and Richmond ($191,800.)
The three states to watch with the most cities in the top 100 for growth are Texas, Tennessee, and Virginia, with an honorable mention to Ohio and New York.
Overall, home sales are coming down from the mountain peak, but they will level-out at a high plateau, says Lereah, but you'll still be in the nosebleed section if you buy this year.
Home prices went over 12 percent higher in 2005 to nearly $209,000. While increases won't be in the double-digits for 2006, you'll still pay six percent more for the average home - that's $221,000. Expect to pay a premium if you're buying new construction. Higher building costs will make new homes cost about $250,000 in 2006.
Thirty-year fixed-rate mortgages should trend up modestly during the second half of 2006, but the year will end about where interest rates are now, about 6.5 percent. Rising inventories mean more choice for homebuyers, but price increases show demand is still strong.
If you're a buyer, don't wait. There are too many indicators that jobs are plentiful, baby boomers, genXers, echo boomers and immigrants are all buying, and incomes are rising. That means demand is not going to go away, and neither will higher prices.
Take advantage of still historically low mortgage rates, and join the party.
