- The Washington Times - Thursday, July 27, 2006

The housing slump reached a new milestone this spring as home prices that were soaring at double-digit rates only a year ago reached the break-even point and started to decline in many once-booming areas, recent reports show.

After an unprecedented run that fueled economic growth for five years, housing has become a drag on the economy. Sales of new and existing homes are down about 10 percent from a year ago, home construction is tailing off, and mortgage financing has collapsed by 28 percent from levels pumped up by record home purchases and refinancings last year.

The rapid slowdown in housing has particular repercussions for areas such as Washington, where the local economies are driven in part by real estate and are seeing a marked slowdown in job growth in highly paid professions such as real estate sales, mortgage financing, architecture and construction engineering.

“We’re seeing a shakeout” in the mortgage industry, said Christopher Cruise, who trains mortgage loan officers. “People were just answering the phone during the refi boom and making six-figure [incomes]. Now, the phone’s not ringing any more” and real estate professionals are having to work much harder to make money, he said.

The slowdown is healthy in a market in which prices climbed too high, homes became unaffordable for young buyers and too many people were rushing into home purchases thinking that prices could go nowhere but up, he said. He likened the five-year housing boom to the technology stock bubble that burst and caused a shakeout in 2000.

“It was like the greater fool theory — there has got to be a fool out there who’s willing to pay even more than me for this house. At some point, you run out of fools,” he said.

Mr. Cruise, a former television reporter, credits a nationwide rash of publicity a year ago warning of a housing bubble for prompting people to stop and think more carefully before buying. The result has been a sharp slowdown in sales and a doubling of the number of homes available for buyers as well as a flattening of prices.

The high-flying D.C. and Northern Virginia real estate markets, which led the boom in the Washington area, also are leading the decline with small price losses in the past year, according to local Realtor statistics. Prices continue to rise for single-family homes in Montgomery and Prince George’s counties.

Nationally, prices for existing homes last month eked out a gain of 0.9 over last year, while new home prices have posted declines.

David Lereah, chief economist at the National Association of Realtors, said the flattening of home prices is helping to stabilize the market, after months of plummeting sales.

“Sellers have recognized that they need to be more competitive in their pricing, given the rise in housing inventories.”

Mr. Cruise, who travels to California and other areas to train loan officers, said Washington seems to be doing better than other hard-hit real estate markets on the East and West coasts, probably because federal spending continues to fuel economic growth and jobs in the region.

Job opportunities, which stagnated in the Washington area in the past year, are declining in housing-related areas such as architectural and engineering, according to a Monster Employment Index.

Paul Yalnezian, president of the real estate firm Right Home, said the housing slump has been precipitous in California.

“The number of able, ready and willing buyers has dwindled significantly. We are seeing more and more price reductions,” he said. But while the number of mortgage defaults has risen by more than 75 percent, “so far the predictions of mass exodus and foreclosures have not taken place.”

Some industry observers fear the fast-declining housing sector, which enjoyed only a weak revival during the traditionally strong spring selling season, is headed for a bust this fall when sales and prices typically decline from high-season levels.

“August will begin the buyers’ market,” said Donna Evers, president of the real estate brokerage Evers & Co. “Buyers should do their homework now and get their finances in order before jumping into a purchase.”

Robert Dye, analyst with Economy.com, said areas where housing soared the most are the ones most likely to see outright price drops in the months ahead. Among the areas where he sees a “risk of correction” are the Washington area, California, Florida and Arizona.

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