- The Washington Times - Thursday, July 27, 2006

Why aren’t builders running scared? Because the underlying principles of a good market remain sound despite scurrying potential buyers who are afraid of buying at the height of the market. Although nationally the industry has cooled to “more sustainable levels,” the Bureau of Labor Statistics “reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005,” according to the National Association of Home Builders (NAHB).

A cooling of the market this year still will result in the third-highest level of housing starts in the past few years, the builders association says in a midyear housing report released recently on its real estate trends Web site (www.HousingEconomics.com).

That’s why you keep seeing building projects going up. Not as many houses are being constructed as were last year, to be sure, but the NAHB report points to several positive market growth indicators in various regions across the country.

Job growth is continuing upward. Unemployment is dropping. Businesses continue to expand, and economists across the country continue to estimate that the need for more housing will stretch beyond the current inventory surplus.

The National Association of Realtors is holding to projections of 2006 being another very strong year — the third-highest on record.

NAHB members are still bullish on the housing market.

What we’re seeing, it seems, is a transition year. People who have no choice but to buy because of social or lifestyle reasons — the birth of a baby, marriage, retirement, in-laws moving in, job relocation — will buy now and unwittingly pick up a great deal.

Buyers who are too skittish about the market will miss a finance-boosting opportunity. In markets that have normalized — Washington, Miami, Chicago and Phoenix — buyers who buy based on rock-hard economic evidence will be excited in a few years to realize they bought a house low and stand to earn a handsome profit.

Ask anyone in the Washington area if he or she would have bought a lot of property in 1990 — the last time the market took a timeout — and held it until today. Everyone would grin. At that time, the average home price was about $179,000. Prices were dropping, and the job market was faltering. Today, housing prices are up by 4 percent over last year, employment is up by nearly 64,000 jobs compared to a year ago, and the job market is still chugging along.

Home sales have leveled off, and rentals are skyrocketing. I smell opportunity.

We have 20 percent more jobs headed this way in the next four years compared to job growth over the previous four years, according to the George Mason University Center for Regional Analysis. That’s 256,000 jobs. While other areas may not be as robust, they still are growing. If the new employees don’t buy houses, they’ll rent. That’s causing pressure on rents as they begin growing nationally at a double-digit rate for some areas.

M/PF YieldStar, a real estate market intelligence firm, estimates that 2006 and 2007 will be boom years for rental markets and multifamily housing starts. Occupancy rates surpassed an average 95 percent mark in the fourth quarter of 2005 for the 57 metropolitan areas the group tracks.

The real item for buyers to watch is interest rates. As buyers keep waiting for prices to “bottom out,” their buying power evaporates with the ever-growing interest rates. Just a year ago, a household with an income of $100,000 could afford a house in the $450,000 price range. Today, the home price that same income can finance has dropped to about $394,000 simply because of interest rate increases. Experts are talking about interest rates hitting the 7 percent mark before the end of the year.

In addition, as jobs keep growing, rentals will disappear. Pent-up demand will burst forth in another few months. Buyers, pull out your checkbooks and get onboard now while the market has leveled.

There’s a reason they call it a buyer’s market.

Why aren’t the builders fearful? Job growth. You have to live somewhere. Workers will purchase or rent one of the new residences under construction.

Contact M. Anthony Carr through his Web log (https://commonsenserealestate.blogspot.com).

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