Housing Prices Expected to Fall

Last updated Saturday, January 13, 2007 4:18 PM CST in Business

By Kim Souza
The Morning News

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    It may not be the news homeowners, contractors and real estate agents want to hear, but economists continue to predict further declines in home prices will prevail throughout 2007.

    In November, Washington County reported the first decline in average home prices in Northwest Arkansas after 11 months of price increases despite oversupply and sagging sales.

    "The market must continue to work through the oversupply that has been building for the past two years. We simply can't absorb all the product available and soon to come through the pipeline overnight," said Kathy Deck, director for the Center for Business and Economic Development at the University of Arkansas.

    The inventory surplus reported in the last Skyline Report rose by 22 percent from the year before to almost 3,000 homes completed and unoccupied.

    Deck predicts the oversupply will put additional downward pressure on prices with single digit declines lasting through 2007 and into 2008.

    Moody's Economy.com, a private research firm, projected that the median home sales price will drop this year by 3.6 percent -- the first decline for an entire year in U.S. home prices since the Great Depression.

    In Northwest Arkansas, Moody's analyst Acharya Yubraj predicts a price decline of roughly 2 percent on fewer sales in 2007 as compared to 2006 based on data collected by the National Association of Realtors and the Office of Federal Housing Enterprise Oversight.

    David Wyss, chief economist with Standard & Poor's, forecasts a 3 percent decline in the nation's housing prices from the fourth quarter of 2006 to the same period in 2007.

    "Nationally, the big bang in sales is over and don't expect it to recover until late this year or early next year and prices are not done falling -- they will contract more," Wyss said.

    He explains there are three basic phases in a housing downturn and each local and regional market is experiencing various stages of the three-year downturn.

    Phase I is "Denial." During this first year prices keep going up despite falling sales, Wyss said.

    "People just refuse to sell at lower prices and that usually lasts about a year," he added.

    Phase II is "Anger." In this phase, oversupplies build, people can't sell and prices come down while building slows. This can cause further economic fallout when people stop or slow the building rate, Wyss said.

    Phase III is "Acceptance." Wyss said this occurs when the unsold inventory is cleared out.

    On a positive note, another factor affecting how fast a local market recovers includes employment.

    "When jobs are being created, the unsold inventory will be absorbed faster," Wyss said.

    Larry Kelly, a vice president for the Arkansas Realtor's Association, sees the Northwest Arkansas area recovering by the spring.

    "I think we are addressing the oversupply by less building and while prices may flatten out in the coming months, I think in the spring we will see a different market," Kelly said.

    For those who are in still in the market to purchase a home, Wyss said don't wait too long.

    While prices are likely to slide a little lower, he predicts higher long-term interest rates will be a reality toward the end of the year.

    Reader Comments (16 comment(s))


    The following comments are provided by readers and are the sole responsibility of their authors. The Morning News does not review comments before their publication, nor do we guarantee their accuracy. By publishing a comment here you agree to abide by our comment policy. If you see a comment that violates our policy, please notify the web editor.

    housing panic wrote on Jan 15, 2007 7:35 AM:

    " Remember folks that this 3.6% decline DOESN'T INCLUDE THE MASSIVE INCENTIVES being used to move dead inventory Also, the crash isn't just about the massive inventory. It's about the ponzi scheme effect ending. People were buying homes ONLY for the prospect of future appreciation. Now that they know the home will be worth less in the future than it is today, home prices will regress back to where the FUNDAMENTALS make sense - where it's cheaper to own a home than rent it. In other words, we have a long, long way to go http://housingpanic.blogspot.com "

    Retired Banker wrote on Jan 15, 2007 9:42 AM:

    " The real concerns in the housing sector being overlooked by the pundits are bad debt and repossessions - each which is rising rapidly. We could see a repeat of the late 1980s/early 90s when the feds stepped in to take over banks on the west coast who tanked because of bad real estate loans. The result could be an aggressive liquidation of repossessed properties by the feds, which could reduce prices even further and faster on all inventory. "

    Skeptic wrote on Jan 15, 2007 11:23 AM:

    " "Larry Kelly, a vice president for the Arkansas Realtor's Association, sees the Northwest Arkansas area recovering by the spring." Nice unbiased source there. Certainly no conflicting motives. "It will be better by spring" was said last year at this time. Blah, blah, blah. Until employment and wages substantially rise, the housing market will remain weak. Or until credit standards are reduced again to enable folks to buy houses they can't afford. "

    homeowner wrote on Jan 15, 2007 1:26 PM:

    " I am just a homeowner but I can say this...we do have an oversupply of new homes in NWA...a majority of them 200,000 buck and up...the average person can't afford homes that expensive. The affordable homes are still selling...people are still moving here....investors just got too big for their britches. "

    WillNotBuy wrote on Jan 16, 2007 11:15 AM:

    " When you move here and try and find a reasonable property only to locate stuff like "5 acres-3 bedroom/2 bath built in 1960 for ONLY $215,000??? Sorry, this same home across the Missouri line only brings $89000??? Something is really wrong....bring your prices down to reality and stuff will sell...materials aren't that high... "

    its over wrote on Jan 16, 2007 2:59 PM:

    " Sub prime lending, maina speculation, high inflation, low low interest rates, negative savings rate, second home feaver, bidding wars. How is this good for the country? "

    done that wrote on Jan 16, 2007 3:03 PM:

    " In 1991 I lost 50% of my equity in the California bust. My neighbors didn't do so bad, they only lost 45% in Los Angeles. See the people run as their mortgage payment exceeds their equity. "

    Anony-Mouse wrote on Jan 17, 2007 12:00 PM:

    " A mortgage is only a long term lease on MONEY. It does not represent home ownership. The typical mortgage is really a massive debt spread over thirty years. Use some sense, people. "

    Richard Wicks wrote on Jan 18, 2007 7:35 PM:

    " Ironically, I believe Wyss is in denial. People who have done more than just look at the last decade and know something about the great depression know what comes of unbridled debt. We're in for a rough time and this is just the beginning of it. The simple fact is that first time homebuyers are completely priced out of the market, people have been buying houses on speculation, rents on many parts of the country are 50% the cost of the mortgage of the same property, and we have 70 million people that will soon be drawing on a Social Security surplus that the Federal Government squandered on SDI, the Vietnam war, the anti-ballistic missle system, the national space plane, the Korean war, a mission to the moon, you name it. It's going to be interesting times for certain. Our "recovery" from 2000 was paid for by housing refinancing, and now the bills are due. All you have to do is go to www.foreclosure.com and look at the number of foreclosures every week to see where this is headed. Consumer spending is gone for a long time, and it's going to force us into a recession no matter how much the Fed plays around spinning plates. "

    Frank wrote on Jan 21, 2007 5:57 PM:

    " A lot of gloom and doom here. It's pretty hard to compare this housing market with past periods where jobs were drying up or major industry layoffs occurred like in 1991. It will soon be common to have longer loan periods than 30 years and that will affect "affordability" by making payments lower. "

    JAFO wrote on Jan 26, 2007 9:35 PM:

    " Frank, the longer than 30 year loan periods will just increase people's servatude to the banks. People will be passing their mortgage on to their children. "

    Frank wrote on Jan 27, 2007 7:35 PM:

    " The average time that someone has a mortgage is three-and-a-half years, so the real question is not whether the term is 25, 40 or even 50 years but is the individual comfortable with their repayments and will they be able to pay back before retirement. Remember, people in their twenties today may not retire till their seventies so the scope is there for longer mortgages. If your financial situation improves then in the future you should be able to switch your mortgage to a more flexible system which allows owners the option to pay off the 40 year mortgage early. "

    George wrote on Feb 3, 2007 10:26 PM:

    " Let's put the blame for high prices where it belongs... With the greedy 'Mr 7%' realtors. ...And if banks would stop supporting inflated prices by supplying 'innovative loans', house prices... AND THE COUNTRY would not be in such debt. "

    Barry wrote on Feb 5, 2007 11:55 AM:

    " Frank, have you looked to see how much difference there is on a 50 year vs a 30 year loan? I did consider a 50 year mortgage, but the monthly payments are very similar. Underwriting standards are getting tighter. What effect will requiring buyers to prove their income have on home prices? "

    chris wrote on Feb 5, 2007 12:01 PM:

    " The logic of the 40 year mortgage is specious. If it's that easy, why stop at 40? At its essence, a home mortgage in the US is a stake in the money font managed by the US federal reserve. A big part of the reason home values have increased so much is US monetary policy, i.e., money creation, or 'liquidity injection' as many prefer to beningly refer to it. This casued the low interest rates and easy credit that fueled the boom. At its heart, expanding monetary is unsustainable, but most Americans now view it as normal and healthy and a birthright. There's a downside and it's ugly. "

    Own out of CA gov worker wrote on Feb 6, 2007 10:11 PM:

    " Yeah, how 'bout that article, with the fluff from the real estate professional. Just a bunch of sales talk. These were the same ones who in 2005 were saying to people not even in a position to own a home, "You better buy now, or be forever priced out of the market." How do people like that speep at night, or are they stupid? Just look at the house price index over the decades on a graph. Up until 2001, it looks like the gradual transition from coastline to the Smokey Mnts of NC/ Tennesee, with small valleys between. Then look at 2001-2006. Its the eastern escarpment of the Sierra Nevada! Thats not natural. Nor will what is about to happen be natural. Hold onto your hat. "


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