Bubble-bursting weakness

From the New York Times:

Home Prices Fall in More Than Half of Nation’s Biggest Markets

Prices for single-family homes fell in more than half of the nation’s 149 biggest metropolitan areas in the last three months of 2006, according to data released yesterday by a trade group for real estate agents.

The figures from the National Association of Realtors show that the housing market weakened noticeably in many parts of the country at the end of last year and indicate that suggestions by some industry officials that the market has hit bottom could be premature. In the previous quarter, prices fell in one-third of all metropolitan areas.

The biggest price declines were concentrated primarily in two kinds of cities: the formerly booming markets along the coasts and in the Southwest, and in Midwest and Northeast cities hurting from the loss of manufacturing jobs. The biggest declines, for instance, were in Florida — Sarasota-Bradenton (down 18 percent), Palm Bay-Melbourne (17 percent) and Cape Coral-Fort Myers (11.7 percent). The declines in prices were especially steep for condominiums.

“You have two kinds of weakness here: there is the traditional economic-driven weakness in parts of the Midwest, and there is the bubble-bursting weakness,” said Jan Hatzius, chief United States economist at Goldman Sachs. “That’s what is bringing down the national home price appreciation rate.”
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In addition to weaker sales and declining prices, the number of homes on the market has been climbing. That suggests, economists say, that prices may have to fall further for sales to pick up and the overall housing market to recover. In the fourth quarter, the vacancy rate for owner-occupied homes was 2.7 percent, up from 2 percent a year before and the highest it has been since the Census Bureau started compiling the data in 1956.

“That means we have got a while before this thing fully adjusts,” said Edward Leamer, an economist at the University of California, Los Angeles. Mr. Leamer noted that individual sellers often preferred to wait rather than cut the price to a level that would be agreeable to most buyers. That gap between seller and buyer is reflected in the decline in sales and the buildup in the number of homes sitting vacant.