Housing market to chill without a pop

Panelists predict 2006 real estate sales still high
By: Janis Mara: Inman News
It might be a refreshing breeze, it might be a slight chill, but though it's a slowdown, it's definitely not a bubble bursting, said industry experts during an audio conference Thursday on the current real estate market shift.

"I see a slowdown in prices but not a crash," said Mike Sklarz, head of analytics for Fidelity National Financial, during an Inman News audio conference, " Market shifts: Slight Breeze or Tsunami?"

Sklarz said markets can correct in two ways – steep price drops, "as we have seen in the stock market; or, as we see in real estate, correction over time." The analytics head said he has constructed a 100-year analysis of the Los Angeles real estate market, suggesting that prices there might remain stable for a five- or six-year period going forward, as one example.

Sounding a similar note, Christopher Cagan, director of research and analytics for First American Real Estate Solutions, said, "You can sell stocks in a minute; it takes months to years for real estate prices to shift. Any dip will be over the next few years, not in an instant."

Going with the "refreshing breeze" theme, Cagan said, "I think a dip is possible. That's the normal turn of the cycle. Any market, wheat, gold, land, oil or anything that has doubled or tripled in five to seven years might dip. But I don't think it will be abrupt."

Fellow panelist Harley Rouda Jr., CEO of Real Living, whose offices span the Midwest, Florida, South Carolina, Texas and West Virginia, said of his firm, "We are without a doubt seeing a shift from what has been a four or five-year seller's market to a buyer's market," speaking of his territory in particular.

Inventory is increasing over what it was at this time last year, Rouda said, and fewer buyers are coming to market. Properties are taking longer to sell, he said.

"We're seeing increased foreclosures, increased days on the market and increased adjustable mortgages," Rouda said.

Agreeing with his fellow panelists, Rouda said, "While there is going to be a correction, that's not a bad thing. We all know how to make money if things soften. We're anticipating units to stay flat and the median home price to decline. But good agents and good brokers will make good money."

The panelists said they didn't expect Hurricane Katrina to have a negative effect on the economy or on the housing market overall.

"When Hurricane Andrew came through several years ago, the rebuilding in Florida caused a substantial shift in building materials and tradesmen to Florida. This impacted building costs through the U.S. and resale property prices as well," Rouda opined.

"I've done studies of the impact of news events like the Sept. 11 terrorist attack," said Cagan. "They usually don't change the market in the long run, but they usually serve as a theme song for something already in the cards. We're already up in the (real estate market) cycle and running toward a peak, so Katrina and the subsequent gas issues serve as a theme song that's symbolic."

Panelist and Inman News mortgage columnist Lou Barnes said, "Katrina is completely in the rearview mirror."

As the market turns, Rouda said, the high end of the market will probably take the hit. "Because of the affluent spending that takes place with the coastal prices, they are at higher risk."

It might be harder for brokerages with alternative pricing models to compete in a down market, Rouda opined. "People in a down market are less likely to take the risks of working with a company that may not have full exposure," he said. "We have seen through downturns in the last 50 years the market share of strong companies with strong brands and strong market presence go up during downturns."

The National Association of Realtors has predicted that about seven and a half million resales will take place in 2005, and the panelists predicted that resales would stay in the 7 million to 7.5 million range in 2006. Most of them agreed that interest rates would hover between 6 percent and 6.5 percent in 2006.