http://nytimes.com/2005/10/04/reales...gewanted=print
October 4, 2005
Slowing Is Seen in Housing Prices in Hot Markets
By DAVID LEONHARDT and MOTOKO RICH
A real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country, including New York.
More sellers are putting their homes on the market, houses are selling less quickly and prices are no longer increasing as rapidly as they were in the spring, according to local data and interviews with brokers.
In Manhattan, the average sales price fell almost 13 percent in the third quarter from the second quarter, according to a widely followed report to be released today by Miller Samuel, an appraisal firm, and Prudential Douglas Elliman, a real estate firm. The amount of time it took to sell a home was also up 30.4 percent over the same period.
In another sign that the housing market might have reached a peak, executives at big home builders have sold almost $1 billion worth of company stock this year. [Page C1.]
Outside Washington, in Fairfax County, Va., the number of homes on the market in August rose nearly 50 percent from August 2004. In the Boston suburb of Brookline, Mass., where many three-bedroom houses cost $1 million or more, the inventory of homes for sale has increased in just the last few weeks, said Chobee Hoy, a broker there.
For-sale listings have also swelled throughout California, according to the California Association of Realtors. In the San Francisco Bay area, they have increased 16 percent in the last year, Coldwell Banker Residential Brokerage said.
"We are seeing a market in transition," Leslie Appleton-Young, the association's chief economist, said.
Brokers said that some houses seemed to be on the market longer because sellers priced them too high, assuming that their value was still rising sharply. In other cases, people who otherwise would have waited a year or two to sell their homes - like empty nesters ready to move into smaller quarters - had listed them now out of fear that prices would soon fall.
The question remains whether all of this represents a momentary cooling off of some overheated housing markets, or it presages a more pronounced downturn that would end a decade-long boom.
Some economists and commentators have for years predicted the bursting of a real estate bubble, and previous slowdowns have turned out to be relatively brief pauses before prices started accelerating again.
But with mortgage rates now rising, the cost of gasoline hovering at or near $3 a gallon and house prices in some areas out of reach for many families, brokers and analysts said they thought that this slowdown could be the real thing.
For now, the change remains a far cry from the bursting bubble that some have predicted.
In Massachusetts, for example, the median house price remained flat from July to August, and the median condominium price fell only slightly, according to the Realtors' association there. At the start of the year, prices had been rising at an annual rate of more than 15 percent.
If anything, some brokers said, the recent slowdown meant a return to a healthier, more sustainable market.
"What we had was abnormal," said Dottie Herman, chief executive of Prudential Douglas Elliman. "People get used to abnormal times and then when they're normal, they think there's something wrong."
Alexander Shakhov, 47, listed his two-bedroom house in Frederick, Md., an outer suburb of Washington, for $529,000 in July, and it remained unsold for the rest of the summer. A
month ago, he reduced the price to $499,000 at the suggestion of a broker. A week ago, Mr. Shakhov accepted an offer at the lower price.
The market "is not as hot as the last two years," Mr. Shakhov, a scientist at a biotechnology company, said, "but I'm pretty happy."
He bought the house three years ago for $230,000. He now lives in Cleveland, where he has bought a home that is nearly twice as large as his Frederick house for less money.
The cooling off has forced both sellers and real estate agents to begin changing their attitudes about residential property, many said.
Houses that are priced too high are sometimes on the market for weeks or months now, rather than fetching even more money than their owners had imagined they could get.
In Manhattan, the average sales price of co-op and condominium apartments fell 12.7 percent, to $1.15 million, in the three months that ended on Sept. 30 compared with the second quarter, according to the Prudential Douglas Elliman report. The median sales price - which means half of homes sold for more and half for less - fell 3.2 percent, to $750,000.
Still, the average sales price was 10 percent higher this summer than it was a year earlier, according to the study.
Nationally, housing prices rose at the fastest rates since 1979 in the 12 months through August, the National Association of Realtors said last week.
But the changes that real estate agents have seen in recent weeks - increased inventories and longer sales times - have often preceded market slowdowns in the past.
One reason properties are remaining on the market longer is that sellers still expect to reap double-digit price appreciation each year.
"What will slow this market down, and has slowed certain segments of the market down, is overpricing," said Pamela Liebman, chief executive of the Corcoran Group, a large real estate firm in New York. "Back in the spring, there was such a frenzy that very pedestrian product was drawing multiple bids."
Some of today's sellers appear to be pricing their homes as if the frenzy were continuing.
"Their neighbors sold their house when the market was red-hot, and everybody thinks their house is better than their neighbor's house," said Maggie Tomkiewicz, the president of the Massachusetts Association of Realtors and a broker in South Dartmouth. "But when the neighbor sold, there may not have been five other houses on the market" in the area.
The slowdown has also jolted the thousands of people who have become licensed brokers in the last few years. Until now, many of them knew only galloping price appreciation.
"I've gotten these calls from newer agents saying: 'I've had this property on the market for 60 to 90 days. What do I do?'" related Buzz Mackintosh, an owner of Mackintosh Realtors in Frederick, who has been selling houses for two decades. "And I say, 'It's called, 'Reduce your price.' "
Indications of a slowdown have appeared before. Jonathan Miller, president of Miller Samuel, said the last time that average and median sales prices dropped below those the previous quarter at the same time that inventories and sales duration rose in Manhattan was in the fourth quarter of 2002. But by the end of 2003, the market had come back.
An important difference now, though, is that mortgage rates are creeping up, whereas previous comebacks have been fueled by ever-lower rates.
On five-year adjustable-rate mortgages - a popular loan with a fixed interest rate for the first five years - the initial rate has risen to 5.59 percent on average, from 5.14 percent in June, according to BankRate.com.
What is more, some mortgage lenders have started to tighten credit standards, making it harder for buyers to get loans.
"Low interest rates and easy credit standards are just about over," said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
Ron Nixon, in New York, and Matt Richtel, in San Francisco, contributed reporting for this article.
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