More signs of cooling real estate market

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More signs of cooling real estate market

By: JOHN WILEN (Tue, Feb/28/2006)

Home sales fell in January while prices were mixed, more evidence of a cooling housing market.

The number of homes sold in both Bucks and Montgomery counties fell 13.6 percent and 28 percent, respectively, in January from December 2005, according to Prudential Fox & Roach Realtors' HomExpert Market Report.

Nationally, the Commerce Department reported that sales of new single-family homes dropped by 5 percent to a seasonally adjusted annual rate of 1.233 million units last month.

"You are seeing a slowdown in the marketplace," said Steve Storti, senior vice president of marketing at Prudential Fox & Roach. "Everywhere in the marketplace, we're seeing numbers like that."

Sales locally were also off when compared to January 2005. In Bucks, 456 homes sold in January, 15.1 percent fewer than a year earlier. In Montgomery County, 634 homes sold in January, a 10.6 percent decline from January 2005.

January's national new home sales figure marked a 3.3 percent increase from January 2005.

The national decline in sales was a bigger drop than analysts had been expecting and provided support to the view that the housing market, after setting sales records for five straight years, is slowing under the impact of rising mortgage rates.

The 5 percent January drop in sales followed a revised 3.8 percent increase in December and was the biggest setback since a 7 percent drop in November.

Economists had expected sales to be helped last month by the warmest January in more than 100 years of record-keeping. Unusually mild weather had pushed up construction of new homes and apartments by 14.5 percent last month, the biggest increase in more than three decades.

However, the milder weather did not have a positive impact on sales, which fell in all regions of the country except the West.

The biggest decline was a 14.9 percent decrease in sales in the Northeast, which followed an even bigger 23 percent plunge in sales in December. Bucking the national trend, sales in the West posted an 11.3 percent increase in January after a 6.3 percent gain in December.

But while sales were mostly down, prices were mixed. The median price of a home in Bucks was $297,916 in January, 6.4 percent higher than in December, and 9.5 percent higher than a year earlier. In Montgomery County, however, the median price of a home declined 1.5 percent to $261,097 in January when compared to December. That price, however, marked an 8.8 percent increase from January 2005.

Prices had a similar drop in Montgomery County in January of last year compared to December 2004.

Nationally, the median home price rose 4 percent to $238,100 in January from December, and 6.7 percent when compared to January 2005. The median is the point where half the homes sold for more and half for less. The January figure was the highest since an all-time high of $243,900 set in October.

The National Association of Realtors reported earlier this month that a record 72 metropolitan areas saw double-digit gains in home prices in the final three months of 2005 compared to the price levels at the end of 2004.

Some economists have expressed concerns that once home sales start to slow, the big price increases of recent years could turn into sharp declines in a similar pattern to how the speculative bubble in stocks burst in 2000.

But new Fed Chairman Ben Bernanke has said the most likely outcome is for a slowing in housing activity rather than a severe crash.

Mortgage rates have been rising gradually for a number of months with the 30-year mortgage now at 6.26 percent, according to the latest Freddie Mac survey. Many analysts believe that 30-year mortgages will rise to between 6.5 percent to 7 percent by the end of this year.

They think that increase will be enough to trim sales of both new and existing homes and slow the double-digit gains in prices seen in recent years.

Storti, of Prudential Fox & Roach, said the market is simply responding to the Fed's campaign of interest rate hikes.

"That's exactly what the Fed wanted to do," Storti said, calling the latest numbers, "the long-term effect of an attempt to cool the market."

Storti said prices locally will continue to increase, just at a more normal rate of around 5 percent a year.

"We're going to move into a period of a more balanced market," Storti said.

The Associated Press contributed to this report.