What happened to the housing market?

By Melissa Wirkus

When looking at our housing market, it seems as though things turned sour pretty much overnight.
One day, houses were flying off the market in a matter of hours and prices were going through the roof.
For homeowners, things could not have been better.

But then everything seemed to go downhill very quickly. The next thing we knew home prices were declining and there was a surplus of homes on the market with no buyers in sight.

What happened to our market? Well, contrary to popular belief, the laws of physics also apply to the housing market; and what goes up must come down.

According to a home price report on MSN.com by Marilyn Lewis entitled, “Boom to bust, almost overnight,” the housing downturn seems to be spread throughout the entire United States, with some areas of course fairing better than other.

“2006 may well go down as the year Pluto was suddenly just another big rock, Brad and Angelina had a baby and the real estate market slid from great to miserable in a few short months.”

Recent reports show that the median price of a home is down nationally, something we have not seen in a number of years, and there is an excessive amount of homes for sale on the market in most areas.

“The national numbers mask how much better -- and worse -- things are in local markets. In Texas cities, the Carolinas, Utah, New Mexico, Oregon and Washington, real-estate markets are strong. Sales volume and prices are dropping in overpriced markets like California cities -- particularly San Diego -- some Florida cities, Northern Virginia and Las Vegas. In some markets, like Detroit, it is exceedingly difficult to sell a property at all. Prices declined in 13 of the 16 metro areas in Michigan.”

Now that we have acknowledged that we are in the midst of a slowdown, we are left to wonder about how bad things will go. Will prices drop further? Will buyers start to come out from wherever they have been hiding? What about the affects on the economy?

These are all great question, but unfortunately, no one knows the answers.

“For an economy centered on house construction, appreciation and equity borrowing, the downturn is an indisputable blow. The questions are: How long will it last and how low will it go? NAR economist David Lereah is telling Realtors that the downturn will be brief. He sees pent-up demand building as potential buyers stay out of the market, presumably waiting for prices to drop and settle. The NAR's Yun points out that the context for the housing drop is not dire, since other aspects of the economy, like job creation, interest rates and unemployment are all fairly strong.”

Although some experts in the industry are touting an optimistic view on the situation, others are not so happy.

“But other analysts believe the slide ‘still has a long way to run,’ as Ian Shepherdson, chief U.S. economist for Valhalla, N.Y.-based High Frequency Economics, put it in a newsletter to subscribers. In fact, Shepherdson worries that the fast housing downturn might pull the rest of the economy down, too. He points to recent NAR data showing a big drop in pending home sales, a trend that Lereah predicts is likely to ‘flatten out’ in months to come.”

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