Southeast Michigan’s housing market took a sharp dive at the end of a weak 2005, signaling more tough times ahead with interest rates rising and a scarcity of new jobs.
Poor sales in the final few months closed out a year in which homeowners were lucky to get a negligible increase in property value.
A decline in house sales last fall has left a January glut of unsold properties in suburban Boston as the big spring selling season approaches, according to data released yesterday.
”Last year was a real awakening,” he said. Now, ”buyers and sellers know the market’s changed. Last year, nobody knew.”
As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.
The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth.
O’ahu single-family home prices showed significant declines in nearly all of the island’s most expensive neighborhoods during the last quarter of 2005 — another sign the state’s blazing housing market is cooling.
Dec. Slump Shows Housing May Be Cooling
However, economists are forecasting that construction and sales activity will slow this year under the weight of rising mortgage rates. The big question is whether the slowdown will be gradual or something more severe.
The 8.9 percent drop in construction activity in December was more than double the decline that analysts had been forecasting. It was blamed in part on wet and cold weather in December, which followed an unseasonably warm November when builder activity had risen by 3.4 percent.
Lee Wetherington, a prominent Southwest Florida builder not known for his pessimism, is uncharacteristically gloomy. His home building company saw sales drop 50 percent to 70 percent in the fourth quarter compared with a stellar performance at the same time last year. “Sales have just fallen off the cliff,” Wetherington said. “There’s going to be a dramatic slowdown over the next six months.”
Sales of existing homes in the capital region fell 30 percent in December compared with a year ago as Sacramento County’s median sale price dipped for the fourth consecutive month, to $355,000, DataQuick Information Systems reported Thursday.
Bay Area housing market got hit by a double whammy in December: the ninth consecutive month of slowing homes sales and a month-to-month drop in home values, a real estate information service reported today.
Government of Singapore Investment Corp., which manages more than $100 billion of foreign reserves, said it may buy real estate in India and Brazil for the first time to guard against the risk of falling U.S. property prices.
“Whether it’s going to be a bubble or a slow leak is hard to say,” Seek Ngee Huat, president of GIC Real Estate Pte, said in an interview. “We will explore new markets in places like Brazil and India. There are high risks” in the U.S. housing market.
“That’s when I ran out of money,” she said. “I tried to pay it but I couldn’t keep up with it anymore. I have nothing.”
They’re not alone. Foreclosure filings last year in Massachusetts were up 34 percent through November, compared to the prior year.
Experts say the trend is a fallout from the housing boom of the past decade, in which people took out high-risk mortgages, such as interest-only and no-down-payment loans, in order to get into expensive homes.
“Although I do not think that a sharp fall in housing investment is likely, a range of forecasts from flat to moderately declining seems reasonable,” said Jeffrey Lacker, president of the Fed Bank of Richmond, in a speech yesterday. “Uncertainty” over how much housing will slow this year is one area of risk for policy makers this year, he said.
According to a market analysis released by National City Corp., a financial holding company, and Global Insight, a financial information provider, the St. George housing market is 35 percent overvalued.
This statistic means homes are currently being purchased for more than they are worth.
He said part of the problem is sellers have unrealistic expectations of what their homes are worth. However, he said this is changing because of supply and demand.
Throughout history, you will find notable examples of manias, Ponzi schemes, and bubbles that have ended up in disasters with investors cutting back on their spending and scrambling to atone for their financial mistakes. This scenario did not happen after the Dotcom bubble. Instead, investors shrugged off their losses as they saw the value of their homes skyrocket. Consequently, the rise up in real estate prices allowed them to continue spending and temporarily delayed the US economy from heading into a major recession. I believe that 2006 will be the beginning of the burst of the real estate bubble, and that this burst will have immediate and severe consequences on the US economy as a whole.
Schlegel urged sellers to get ahead of the curve by listing their homes before the early spring surge in inventory in February and March.
“The worst mistake sellers can make is to wait too long to get their properties on the market,” Schlegel said.