The real estate market is off in formerly red-hot cities such as Phoenix, where sales have cooled 31 percent from the second quarter of last year, and Miami, where they’ve cooled 23 percent. Time on market in Phoenix is now 53 days, more than double what it was a year ago. Prices in many of those markets are still up, though, in some cases by double-digit percentages. But in the not-too-distant future, they should start falling – and that’s not a bad thing.
Certainly no one wants to see price adjustments dipping into negative territory – as they already are for condos in many markets that were seeing boom times a year ago – but we need cooling prices today to give buyers a change to get back into the market.
Unlike previous housing slowdowns, which have come on the heels of broader economic weakness accompanied by job losses and rising interest rates, today’s slowdown comes amid an economy that continues to chug along at a respectable pace. The GDP stood at around 2.5 percent in the second quarter of this year. Continuing solid spending by consumers and businesses, steady government spending, a recovering stock market, and strong corporate profits are behind the steady growth.
Not surprisingly in such an environment, many metro areas are creating jobs, not shedding them. In Los Angeles, for example, more than 60,000 jobs were created over the past 12 months, even though the time that homes spent on the market there jumped from 34 to 54 days. In Dallas some 90,000 jobs have been added and time on market has dipped from 67 to 65 days.
And in any case, sales remain on a growth curve in a good one-third of the country, largely in areas that didn’t fully participate in the boom of the past five years. In Boise, Idaho, time on market has dropped from 57 to 43 days over the past 12 months, and in Salt Lake City, sales have been strong and price appreciation has more than doubled.
The explanation for this seeming anomaly lies as much in the psychology of buyers as in their pocketbooks. This is a slowdown caused by high home prices and wavering confidence. Sales aren’t cooling because there are no buyers in the market; they’re cooling because buyers are waiting for prices to ease. I’m confident that once prices ease, investors and households will be back.
This article was written by David Lereah, senior vice president and chief economist for the National Association of REALTORS and was printed in REALTOR Magazine October 2006
