Spring Fever (US News & World Report)
Just how sick is the housing market? It's time to find out.
By Alex Markels
Posted 3/18/07
Call them the three stages of real estate grief.
At first, there is denial, like the kind John Davis and his wife, Jeffy Griffin, were living in when they put their three-bedroom home in Boulder, Colo., up for sale last April for $850,000. "We were pretty unrealistic," Davis, a 47-year-old licensed clinical social worker, admits of his hopes for selling the charming but small farmhouse near downtown. "We just figured it's such a great house ... in the perfect neighborhood."
Then, after denial, comes anger. Like the kind he felt six long months later when a buyer made a low-ball offer, then left town for a weeklong hunting trip. "I couldn't even get ahold of him to make a counteroffer," he gripes of the agonizing days leading up to his decision to pull the house from the market and rent it out for a while.
Finally, there is acceptance, a feeling Davis and Griffin now share since relisting their house last month for $140,000 less than the original asking price. "We're finally coming to that place [of acceptance]," Griffin says of the couple's attitude adjustment. "We're not going below a certain price. And if we need to, we'll find another renter. But we've dropped down to a fair number, and we feel good about that."
After more than a year of hoping they could get what their neighbors did at the market's peak, sellers like Davis and Griffin are finally coming to grips with an increasingly ugly reality. While not yet in freefall, the country's housing slump is starting to look more like a bust as bulging inventories of unsold houses and an alarming rise in bad loans and foreclosures have helped push the nation's median existing-home price down by $19,600 from its July peak of $230,200. That's an 8.5 percent drop, prompting the first annual price decline since a nationwide recession in 1990.
Just like then, economically depressed areas, such as parts of Michigan and Indiana, have led the downturn, as well as formerly hot markets in Florida and California, like Sarasota and Santa Barbara, each of which suffered annual price declines last year of around $70,000, or 18 and 12 percent, respectively. Also hit hard are outlying suburbs and exurbs where buyers had gone to escape big-city prices, such as Stockton, Calif., a 1 1/2-hour commute to San Francisco, where the median price fell by $35,000, or about 8 percent, last year.
Yet even in prime locations, larger, high-end homes in the $400,000-to-$700,000 range (double that on the coasts) have come under increasing pricing pressure, as buyers who had hoped to trade up put off their moves. "First, you have to sell your house, and then you've got to give up that 5 percent mortgage and take out a new one at 6.5 percent," Standard & Poor's chief economist David Wyss says of the weakest segment of the market. "So a lot of people are deciding, 'I don't really need that extra bedroom after all.'"
Such hesitance strikes gloom in the hearts of home builders like Donald Tomnitz, chief executive of D. R. Horton, who had hoped to sell 50,000 homes this year, many of them to trade-up buyers. "I don't want to be too sophisticated here, but '07 is going to suck," he told an investor conference earlier this month, "all 12 months of the calendar."
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03-23-2007, 05:42 PM
