|
‘Flippers’ Could Get Burned by Market Correction
Existing housing prices could be in for a dip over the near term, the National Association of Realtors® said last week, but with economic fundamentals sound housing price appreciation should be getting back to normal fairly quickly.
“A year ago we had record home sales and tight supply with buyers bidding over the asking price,” said David Lereah, NAR’s chief economist. “This year, sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build-up in the housing inventory.”
Lereah said he was expecting a normal pattern for a market correction, with home prices returning to “positive territory” within a few months, although appreciating at a slower annual pace than the historical norm.
“Keep in mind that over time, home prices rise at the rate of inflation plus one to two percentage points,” said Lereah. “Buyers in most parts of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned.”
Lereah said that home sales for the balance of the year will be lower than projected earlier as the market works its way through the current inventory and price imbalance.
The national median existing-home price for all housing types is expected to grow 2.8% this year, to $225,900, with the median new-home price rising only 0.2% to $241,400, according to the Realtors®. New-home prices are being dampened by builders offering incentives to reduce inventory, the association said.
Existing home sales are forecast to fall 7.6% to 6.54 million this year, which would make 2006 the third best year after consecutive record highs in 2004 and 2005. New-home sales, Lereah predicts, should drop 16.1% this year to 1.08 million, which would be the fourth highest on record.
The 30-year, fixed-rate mortgage is likely to rise to an average of 6.7% in the fourth quarter, according to the Realtors® forecast.
Buyer’s Market a Plus — For Buyers
“Mortgage rates are one of the bright spots in the economy right now, with an unexpected decline recently in the 30-year fixed rate to a narrow range around 6.5%,” Lereah said. “This should encourage some of the nearly 4 million people who’ve found newly created jobs over the last two years.”
Mortgage rates ended their recent downward drift for the week ending on Sept. 7, according to Freddie Mac's Primary Mortgage Market Survey. The 30-year fixed rate moved up from 6.44% for the prior week to 6.47%.
“We expect that mortgage rates will continue to fluctuate as new economic data are released, but still remain in the 6.5% to 7% range for the rest of the year,” said Frank Nothaft, Freddie Mac’s chief economist, but slowly rising mortgage rates are being offset in part by a slowdown in home price appreciation.
“Consequently, higher rates have resulted in houses sitting on the market for longer periods of time, changing the real estate sector into more of a buyer’s market from the seller’s market of the last few years. This is a plus, as it allows potential home buyers more time to look around and decide what they really want and what they can afford.”
 Attend the NAHB Construction Forecast Conference
Don't miss NAHB's fall Construction Forecast Conference for the latest economic news about the housing industry. Join NAHB on Oct. 25 for the Construction Forecast Conference — Fall 2006 in Washington, D.C.
If you can't attend in person, sign-up for the Webcast.
To register for either, visit www.nahb.org/cfc.
Want to Know the Housing Starts Through 2014?
Find out in HousingEconomics.com’s Long-Term Forecast.
HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more.
To learn more, visit www.housingeconomics.com.
|
