Prices are softening as inventories grow in towns like Miami, Las Vegas and Phoenix. But year over year, appreciation is still strong. See how your town fared.
By Marilyn Lewis
A new report released Thursday shows the once-torrid rise in housing prices continues to slow. Prices in the first quarter were up just 2.04%, the smallest increase in two years, according to the federal Office of Federal Housing Enterprise Oversight.
The OFHEO noted that some red-hot markets were off sharply -- but that didn't mean prices were falling. Over the last four quarters, prices nationwide have risen 12.5%. In places such as Las Vegas or Phoenix, prices have risen more than 30%.
But rising interest rates and building inventories of homes for sale aren't completely reflected in the report's numbers, which reflect data through March 31. In fact, the softest markets in the country right now are in Miami, Washington, D.C., Los Angeles, Las Vegas and Phoenix, said David Lereah, chief economist for the National Association of Realtors.
San Diego, too, is feeling the contraction -- but not to the extent of the other cities, said Chris Mayer, director of the Paul Milstein Center for Real Estate at the Columbia Business School in New York.
Phoenix, Las Vegas and Florida are the markets with the most pullback, Mayer said. In those markets we have built up prices not sustainable by fundamentals. I think, in most of the rest of the country, prices are not far from where they should be. Mayer said that inventory is building in Southern California, too, but he was less concerned about the prices there being unsustainable -- except perhaps for San Diego.
House appreciation by metro area
How does your city compare? Follow the links below for the complete list and see which are hottest. Data are from March 2006.
Akron, OH through Los Angeles | Louisville, KY through Yuba City, CA
No bursting bubble is predicted, just a continued slowdown as rates keep rising. According to Bankrate.com, the national average rate for a 30-year, conventional, fixed-rate mortgage was 6.72 at the end of May, up from 5.65% a year earlier.
Public apprehension about the economy was evident, too, in the recent release of the Consumer Confidence Index. In April it hit a four-year high, yet retreated in May to levels last seen since the aftermath of Hurricane Katrina, said Lynn Franco, director of The Conference Board Consumer Research Center. Franco attributed the pullback to fears about the short-term economy, the labor market and consumers earning potential.
Those fears are reflected somewhat in a report released Thursday by the Office of Federal Housing Enterprise Oversight. It showed that growth in prices slowed to 2.04% in the first quarter of 2006, the slowest in two years. But it also reflects double-digit gains over the last four quarters: Prices rose an average of 12.54% over the first quarter of 2005.
The backup tells the story
Softening prices do not paint the picture of todays real estate market as clearly as the backed-up inventory of homes for sale does. It is there that building pressure to drop prices can be seen. Prices are a lagging indicator of where the market is, said Mayer. What you really see first is the change in sales.
Prices tend to lag behind the pace of sales in slowdowns like this one, Lereah said. Sellers get very stubborn. They are willing to keep their house on the market longer, despite the lack of offers, unwilling to drop the price. Thats why an inventory backlog reveals market troubles first.
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Lereah pointed to Naples, Fla., as one place where sellers are scaling back from original asking prices. Elsewhere, its most a question of growth slowing to single-digits annually, as it was before the real estate boom began, he said.
Nationally, the price of an existing home stood at $269,000 in April, according to the Realtors, up from $222,000 in 2003. Obviously, that masks some extremes.
Other markets take off
Despite the flattening of sales on the coasts, formerly moribund housing markets in the Southwest are taking off, with price increases in the Texas cities of Houston, Austin, San Antonio and Dallas and in Albuquerque, N.M., rising recently by double digits, Lereah said, speaking by phone from the NAR offices in Chicago.
Were seeing a tale of two markets, Lereah said. Half of the country is cooling, and half is actually picking up momentum.
The recent growth in the Southwestern cities is led by not by investors but by local residents, he said. Investors have pulled out of the coastal ex-boom towns and are avoiding the newly growing markets, too, Lereah said. He attributes the growth instead to people who live in these towns and were holding back but now feel encouraged about investing.
Mayer, however, was less convinced that rising sales in these cities will constitute a trend. Midwestern markets which havent boomed as much may grow, as may some places in the South and in Texas, he said, but he did not predict great price appreciation there.
Still bullish on the coasts
Underscoring how regional and even local these markets are, both experts were bullish about the prospects for certain locales. For Mayer, those were the high-profile markets on the coasts where new construction is still limited. Cities like Boston and San Francisco can still expect prices to grow because construction is limited and housing is a limited commodity, he said.
Lereah, too, predicts continued, albeit slower, growth on the coasts and sees Florida as a perennial magnet for aging baby boomers, despite the current slowdown there. These are still great markets, he said.
My overall view, said Mayer, is that we are not seeing a collapsing of a bubble; what we are seeing is a slowdown that we would have expected (with rising interest rates).
Follow the links below to see how 275 metro areas fared through the first quarter of 2006.
Akron, OH through Los Angeles | Louisville, KY through Yuba City, CA
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