Even the real estate agents — typically the most optimistic analysts of the home market — are getting blue.
On Friday the National Association of Realtors lowered its 2006 forecast for home sales, saying a large inventory and price imbalance must work through the system before things get better. The effect, the group says, will be falling home prices.
“A year ago we had record home sales and tight supply with buyers bidding over the asking price,” said David Lereah, NAR’s chief economist, in statement.
“This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a buildup in housing inventory.”
Lereah called it a normal pattern during a market correction and said price should return to positive territory within a few months.
Annual appreciation will be slower than historic norms, he said, but homeowners who stay in their home for a normal period of time “can pretty well bank” on historic averages, which is the rate of inflation plus 1 to 2 percentage points.
Existing-home sales are forecast to fall 7.6 percent to 6.54 million in 2006, the third best year after consecutive records in 2004 and 2005, the trade group said.
New home sales should to drop 16.1 percent this year to 1.08 million, the fourth highest on record.
Housing starts are projected to decline 9.6 percent to 1.87 million in 2006.
The national median existing home price for all housing types is expected to grow 2.8 percent this year to $225,900, with the median new home price rising only 0.2 percent to $241,400, the association said.
New home appreciation is dampened by builders offering incentives to reduce inventory.
The gloomier picture can be seen in the East Valley, too.
R.L. Brown, who tracks the local housing market for homebuilders and real estate clients, said data through July show Valley housing starts are down 20 percent from last year, new home closings are down nearly 10 percent and sales of existing homes have fallen 28 percent.
“I didn’t think it would get this low, and it is,” he said of new home permits. “Frankly I don’t think there’s much expectation of dramatic improvement now through the rest of the year. It would be wishful thinking to think things are going to change in the next three months.”
Brown said the fairly dramatic change from last year should be kept in perspective.
“Last year was an exception and clearly this year is not even going to come close to last year,” he said. “The question of the day is: Will it come closer to 2003 or 2004? And right now that’s up in the air. It will be somewhere in between, we suspect.”
The market is suffering because prices for existing homes are pretty much the same as they were last year, he said. Until the pricing drops, inventory will continue to grow and buyers will continue to stay away.
“In a sense, that drives the new home market,” Brown said. “If they can’t sell their present house, wherever it is, then they can’t buy their new house.”
Last month, the Arizona Real Estate Center at Arizona State University Polytechnic said the market had its worst July for existing home sales in seven years, and median prices fell in every East Valley city except Mesa. July’s are the most recent numbers available.
There were 5,545 sales in July in Maricopa County, up slightly from the 5,460 in June, but it was the poorest July showing since 1999 when 5,240 sales were recorded, the center reported.
Through July, there have been 41,835 sales, while it stood at 68,235 during the same time in 2005. Between January and July 2004, there were 56,745 sales and there were 41,200 during the same months in 2003.
“We’re through the good season in resale activity,” said center director Jay Butler. “We’ve sort of entered the doldrums because now a lot of people don’t want to get involved, unless they have to, looking for home until they get past the holidays.”
He added that Intel Corp.’s announcement this week of job layoffs will have further repercussions. “It just darkens the black hue of the cloud,” he said.
Still, Butler doubts the existing home market will dip much lower.
“We’re sort of at a drift right now,” he said. “The only good thing is interest rates are somewhat lower. They seem to be on downward track, but lenders have tightened their underwriting guidelines.”