I heard a gentleman from the National Association of Realtors on KNX1070 today speak about the unexpected activity in the real estate market this last month. He predicted that we'd see a 5-6% decrease in prices by the end of 2006 nationally and confirmed that this was the "soft landing" that everyone has been talking about. Interesting since the term "soft landing" is a relatively new phrase and one the NAR started using not too long ago.
David Lereah (NAR’s chief economist) writes in a report dated September 2005 that "The Pending Home Sales Index is at the fifth highest reading on record, meaning we can expect historically high home sales to continue in the months ahead" (see NAR article). In California, numbers were realtively stagnant with only a few counties seeing much of an upward trend. (see CAR sales/price report for September 2005). Notice the year over year is still exceptional but the month to month is what you want to look at.
On November 15, 2005, Lereah tells us that, “These historically high home price gains are the simple result of more buyers than sellers in the market,” he said. “The good news is that inventory levels are improving, and housing supply will come close to buyer demand in 2006. In other words, we expect a healthy and more balanced market next year.” (see NAR article) OK...well I'm a little confused. Two months ago the story was a little different. So as of November, he's saying he expects the US to return to a more "healthy" market. I didn't realize it was unhealthy. He didn't mention in the September article that record sales and prices were a bad thing.
Anyway, on December 12, 2005 Lereah says “The slowdown amounts to a tapping of the brakes on a hot market. Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing” (See NAR article). There's the word..."slowdown." That definitely was not in any previous articles. Thankfully he lets us know that a "slowdown" is a good thing. So far, no red flags, right? I wonder if he was tipped off by builders like Toll Brothers slashing projected output. (See Builders Online article 12-1-2005).
In another article released in December of 2005, Lereah says “You can put air in a balloon and it expands or you can take air out and it shrinks. Various metro markets got real hot over the last four years. Air went into those balloons and the prices went up. But now, air is coming out of the balloons. We’re hearing a hissing sound not a pop…there’s a soft landing ahead.” (See article) Oye! The "soft landing" phrase. He closes the article by telling us, "If you’re not a homeowner and you’re thinking of purchasing a home -- do it! 'As a property owner, you’ll benefit from equity and wealth gains over the long-term. If you expect to keep the home for at least four years, there’s more risk to staying out of the market than getting in.'" Wow! From a slowdown to a soft landing all within the same month. Not a great warning system! But he does let us in on the fact that maybe he's thinking now that the "soft landing" might take around four years.
NAR gave three months notice the market was changing and even in the December article, Lehear touted this healthy market is what we've all been waiting for. I personally know a few new home buyers and new investors who are not looking for a slowing of the market. They got in late and overextended themselves to do so. They have known no other kind of market and are unaware of the ramifications and the huge swings California can go through.
The article from Yahoo! at the top of the page talks about two large builders and how profits are up but new orders are down. What could that possibly mean? Well, in places like California where downtown Los Angeles is seeing over 20,000 new condo units installed in the next four years, it means builders will most likely slow down and even hault construction on projects they don't think will land in a good market. That means jobs may be lost. It means migration may increase more then it already has, and we might be in for more then a "soft landing."
Thank you Robb for sending in the Yahoo link. Please keep the stories coming gang! And write some comments.
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