Discouraging news from the National Association of Realtors and the National Association of Home Builders suggests that housing is slowing to the point that some are worried about a "hard landing" off of five-year record sales. But according to lenders, buyers aren't out of money. They're just on the sidelines hoping prices will fall further.

The NAR reported yesterday that "appreciation in existing single-family home prices cooled to single digit rates in most metropolitan areas during the second quarter, while metro area condo prices were essentially flat in comparison with a year ago, according to a recent survey. Out of 151 metro areas covered in the survey, 37 areas experienced double-digit annual increases and 26 metros experiencing generally minor price declines.

Metro area condominium and cooperative prices, covering changes in 57 markets, show the national median existing condo price was $225,800 in the second quarter, down 0.3 percent from a year earlier. Fifteen metros showed double-digit annual gains in the median condo price, and 14 areas had declines.

Where the news is that price declines are spreading. The national median existing single-family home price was $227,500 in the second quarter, up 3.7 percent from a year earlier when the median price was $219,400.

David Lereah, NAR's chief economist, said a market transition is apparent. "With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas," he said. "After a full year of double-digit gains in the national median price, the timing is right for a cooling in the rate of growth -- we are presently experiencing a soft landing in the housing sector."

One reason condos are landing harder than houses is the speculation factor. Housing investors, which were nearly a third of homebuyers in 2004 and 2005, are sitting on the sidelines, benching first-time homebuyers and move-up buyers with them.

Builders' confidence is down to a 15-year low, according to the National Association of Home Builders/Wells Fargo housing market index. The reading dropped to 32, down from 67 a year ago. Like Realtors measure a balanced market at 6 months of inventory on hand, the builder sentiment index should be 50 or higher. Worse, builders in all four regions are pessimistic, say reports. Housing starts have fallen 18 percent, and sales are down 17 percent from July last year.

"Two factors are coloring builders' perceptions of the market right now -- rising sales cancellations and substantial growth in inventories of both new and existing homes," says David Seiders, chief economist for the NAHB.

According to Dataquick Systems, home sales in Southern California declined for the last eight months, hitting the slowest pace in nine years, and the slowest home price appreciation since 1999.

But Marshall Prentice, president of Dataquick, had an interesting spin on why home sales are declining that could indicate a silver lining in the clouds.

"Our sense has been that many who bought homes in recent years purchased them sooner than they otherwise would have because of very low interest rates and a great sense of urgency, given the fear of being priced out forever or missing out on a great investment. That phenomenon helps explain why there's not more demand today."

Supporting Prentice's theory is a tidbit from the Federal Reserve -- that nontraditional loans are still performing better than anticipated, and that only 1/3 of 50 loan officers surveyed said that demand for residential real estate loans to finance homes or for investment was substantially or moderately weaker than last year.

After all, even with a slowdown, the NAR says 2006 will be the third-best year in real estate sales ever.

Published: August 16, 2006

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