Below The Beltway

There are several stories in the news today which provide further evidence in support of the idea that the days of rapidly rising real estate prices are gone.

First, the Washington Post reports that sales of existing homes fell again in June:

In Loudoun County, for example, 515 existing single-family homes and condominiums were sold last month, down from 994 in June 2005, a 48.2 percent decline. Home prices dropped last month in Loudoun for the first time in six years.

Today’s report shows that across the United States home sales dropped 1.3 percent in June to an annual pace of 6.62 million units — more proof that American homes have become harder to sell as mortgage interest rates have been heading up.

There’s similar news from the New York Times:

Selling a new home is getting harder and harder: just ask the builders who are being forced these days to entice potential buyers with expensive inducements like free swimming pools and fancy kitchen cabinets.

At the same time, the torrid pace in the existing-home market is slackening, as prices are leveling off and properties are staying on the market a lot longer than they used to.

Adding it all together, a variety of experts now say, the housing industry appears to be moving from a boom to something that is starting to look a lot like a bust.

?Housing has had a great five-year run,? said Edward Yardeni, chief investment strategist for Oak Associates, a money management firm in Akron, Ohio, and a longtime bull on the economy. While he still does not expect a housing downturn to damage the overall economy severely, he predicts that the housing industry itself is entering a longer decline.

?Instead of being a seller?s market,? he said, ?it became a buyer?s market. And once the psychology changes, it could take a while to reverse. Buyers recognize there?s no need to rush out to buy a home.?

And while there hasn’t been an impact on prices on the national level it is showing up here in the D.C. area:

In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year.

In Loudoun County, for example, the median price of homes sold dropped 1.2 percent last month, compared with June 2005, according to Metropolitan Regional Information Systems Inc., the area’s multiple listing service. In Fairfax County, prices fell by half a percent in May and a tenth of a percent in June. And in the District, the decrease was 0.8 percent in March and 1.2 percent in May, compared with the same months last year, even though prices in the District in June were higher than the year before. The median is the point at which half of the houses cost less and the rest more.

As the article points out, the areas where prices are dropping, such as Fairfax and Loudoun Counties in Virginia, were the areas where prices were also rising rapidly as recently as a year ago. What goes up, though, must at some point come down, and even areas where prices haven’t dropped are seeing increases at a very small rate compared to the past:

Even in areas where the prices haven’t gone below 2005 levels — at least on paper — they are clearly moving at a different speed. Prince William County, for example, last month posted a 1.8 percent increase in median home price, compared with the same time last year. That compares with a 31 percent jump from June 2004 to June 2005.

The evidence of the changing real estate market is all around. In our own neighborhood, townhouses are staying on the market significantly longer than they did last year and seller’s are being forced to cut their asking price to get the house sold; in one case, a neighbor had to drop their asking price $ 50,000 before getting an offer. There are plenty of reasons for what’s happening now —- speculation, higher interest rates, government land use regulation —- but the basic truth is that the real estate market in many parts of the country, especially the Northern Virginia area, was over extended. What’s happening now is something that rational people should have been expecting for a long time.

Linked with today’s Beltway Traffic Jam.