Fourth Quarter Housing Market Report: Bottom Hit, Recovery on the Way
Existing-home sales in most states declined from year-ago levels in the fourth quarter of 2006, marking the likely bottom for the current housing cycle, according to the latest quarterly survey by the National Association of Realtors®.
Prices dipped slightly overall, as sellers were more willing to negotiate with anxious home mortgage loan applicants.
“This information confirms 2006 was the year of contraction,” says NAR Chief Economist David Lereah. “Hopefully the fourth quarter was the bottom of this current business cycle.”
He says home sales are leveling at historically high levels, and examination of data within the fourth quarter shows home prices began to stabilize near the end of the year. “When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices,” he says.
Sales Pace Slows 10%
Total state existing-home sales, including single-family homes and condos, were at a seasonally adjusted annual rate of 6.24 million units in the fourth quarter, down 10.1 percent from a 6.94 million-unit level in the fourth quarter of 2005. Even with the general decline, six states showed increases in the sales pace from a year ago and one was unchanged.
The biggest total sales increase was in the Indiana housing market, where existing-home sales rose 13.7 percent from the fourth quarter of 2005. In Arkansas the fourth-quarter resale pace rose 11.1 percent from a year earlier, while Texas mortgage seekers were responsible for the third strongest gain, up 6.2 percent.
Prices Rise in 71 Metro Areas
The national median price for existing single-family homes was $219,300 in the fourth quarter, down 2.7 percent from a year earlier when the median price was $225,300. For all of 2006, the median price rose 1.4 percent to $222,000.
Among the 149 metropolitan statistical areas examined for the fourth-quarter survey, 71 showed price gains from a year earlier, including 14 metros with double-digit annual increases; 73 areas had price declines and five were unchanged.
The largest single-family home price gain was in the Atlantic City, New Jersey housing market, where the median price of $339,800 was 25.9 percent higher than a year ago. Next was the Salt Lake City area, where prices rose 22.7 percent to $223,600; and The Trenton-Ewing area of New Jersey, with an 18.9 percent increase to $289,000.
Most, Least Expensive Markets
The most affordable median price for single-family homes was in Elmira, N.Y., at $78,400. Other affordable markets include the Youngstown-Warren-Boardman area of the Ohio and Pennsylvania housing markets, with a fourth-quarter median price of $80,000; and Decatur, Ill., at $89,200.
The most expensive was in the San Jose-Sunnyvale-Santa Clara area of California where the median price was $760,000. The second most expensive area was San Francisco-Oakland-Fremont, at $733,400, followed by the Anaheim-Santa Ana-Irvine area (Orange Co., Calif.), at $690,700.
A Look at Long-Term Price Gains
NAR President Pat Vredevoogd Combs says it’s smart to examine home price trends over a five-year period for a more accurate picture of appreciation that homeowners realize when they sell.
“Since the typical owner stays in a home for six years, it’s more useful to look at the five-year comparison for metro area home prices — most of them are seeing strong gains,” she said. The median five-year price gain is 41.8 percent.
NAR’s research shows that typical sellers experienced healthy gains on the value of their home over the last five years in almost all 131 available areas, even in areas with recent price declines.
Metro areas with the largest single-family price gains over the past five years include the California housing markets of Riverside-San Bernardino-Ontario, up 155.3 percent, and Los Angeles-Long Beach-Santa Ana, up 142.3 percent, followed by the Miami-Fort Lauderdale-Miami Beach area of Florida, up 135.4 percent.
Buyers Responding to Incentives
While the fourth-quarter statistics provide a snapshot of the housing market a few months ago, the current market already is changing for the better, Combs says. Favorable mortgage interest rates and better pricing are fueling buyer demand.
According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 6.25 percent in the fourth quarter, down from 6.56 percent in the third quarter; the rate was 6.22 percent in the fourth quarter of 2005.
“Right now, buyers are responding to seller pricing and incentives, and there’s a bit of a pent-up demand as a result of buyer hesitation during the second half of 2006,” she says. “We’re not looking for big changes, but a gradual rise in sales and home prices is projected — that will be good for the overall housing market and related industries.”