According to a survey by Real Trends by 48 of the major US real estate firms, the number of contracts signed this month compared to the same month last year dropped 8% but remained at historical highs [WSJ]. Of course this is not necessarily representative since nearly half of the 90 major brokerage firms did not reply to the email survey. Still the story was on page 1 of the Wall Street Journal.

“‘The air is coming out of the balloons,’ says David Lereah, chief economist at the National Association of Realtors, the nation’s leading real-estate trade group.”

“‘We believe the market has peaked,’ says Doug Duncan, chief economist of the Mortgage Bankers Association. Because of brisk sales earlier this year, he expects sales of new and previously occupied homes to reach a record 8.3 million in 2005, up 4% from 2004. But he believes sales will decline 3.5% next year, ending a four-year streak of record-setting totals.

A cooling of the market is likely to be welcomed by the Federal Reserve, which has worried that home prices have become frothy and banks’ mortgage underwriting standards have slipped. For the past few years, fast-rising home prices have allowed people to borrow more against their home equity, fueling a spending boom. Last month, Fed governor Donald Kohn, citing ‘some indications that housing markets are cooling off,’ said this would force consumers, who are not saving any of their current income, to save more to build wealth, restoring balance to the U.S. economy.”

The gist of this WSJ article is the fact that the market is cooling but remains at record levels. In other words, the number of transactions will ease from historic record levels. However, articles on the housing markets like this seem to blend the number of sales with price levels to the average reader. The takeaway here is that the “frenzy” is generally over, the number of sales will ease and that housing prices are not expected to rise as rapidly as years past.


Tags: , , ,


One Response to “Ain’t It Cooling?: The Number Of Sales Eases From Historic Highs”

  1. sveta says:

    Well, it has started! The slowing of the market has started, and with rising interest rates (the Fed has indicated that the increases will continue) mortgage debt will become very expensive and will start to push some people over the financial edge. Remember Feb. 2000–the slowing of the financial markets? Alhough correlations cannot be drawn, and the speed of decline in stock is much faster, even a plato-ing of the home prices is unwelcomed, since so many people are counting on their home for ready cash and have take our so much equity already…people will be maxed out in the next few years–watch out–the forclosure wave is coming