New York, September 8--The red-hot housing market is showing its first signs of cooling, and the balance of power between buyers and sellers has begun to shift.
Sales of existing homes fell 2.9% in July from June's record pace, according to the National Association of Realtors, and brokers in many areas report that the number of houses on the market is beginning to rise. The result: Buyers are regaining some of their negotiating power and sellers are being forced to lower their sights after years of hefty price increases.
To be sure, home sales traditionally slow during the summer months as families turn their attention to vacations and the coming school year. But the heated spring selling season may have set the stage for a fall slowdown. "There's some indication we're in a transition period ... from a seller's market to a buyer's market," says Tom Kunz, president of Century 21 Real Estate Corp., a unit of Cendant Corp.
And some real estate experts say the recent rise in inventories goes beyond the normal summer slowdown, with more sellers trying to cash out with big gains and more buyers nervous about overpaying at a market peak.
The apparent shift in the market's tenor follows a frenzied spring, when anxious buyers -- fearing they would get priced out by rising interest rates -- jumped into the market. The average price of a single-family home rose nearly 9.4% for the 12 months ended June 30, the largest 12-month increase since 1979, according to statistics released last week by the Office of Federal Housing Enterprise Oversight. Now buyers are getting pickier, although many sellers still expect prices to keep rising at this spring's rapid clip, real-estate agents say.
In suburban Boston, inventories of high-end homes have risen roughly 15% during recent months, and many properties are selling for 15% to 20% below their listing price, says Alan Rice, a senior vice president with Carlson GMAC Real Estate. Buyers are increasingly asking sellers to include furniture or other personal property in the deal, says Mr. Rice, or to provide an allowance for new carpeting or a fresh coat of paint.
Across the country, in Orange County, Calif., which has been one of the nation's hottest markets, the change is even more dramatic: The supply of homes on the market rose to 7.5 months in July, based on the current rate of sales, up from 0.6 month in March, according to the California Association of Realtors.
Still, home sales are expected to reach record levels in 2004 for the fourth consecutive year. And with mortgage rates again hovering just below 6%, according to HSH Associates, purchases could spurt again this fall. Indeed, some markets haven't yet seen a shift. While July was slow, "August has been a whirlwind," says Jane Powers, a broker with Ewing & Clark Inc. in Seattle.
And Chicago, where the market never quite reached fever pitch, is continuing to see steady price gains, says Stephen Baird, president of Baird & Warner.
But elsewhere, there are signs the market is changing. One Orange County broker recently offered "a bonus of $2,500, champagne, roses, chocolates, mini vacation" plus the chance to win $10,000 to the agent who sells a penthouse condo in San Clemente priced at $1,225,000. The property has been listed for more than 60 days. "When something is on the market that long, you just take action to try and get it sold," says Marilyn Taylor, a broker-associate with Century 21 O.M.A., which is handling the property.
Even Las Vegas, where prices increased by more than 52% over the past 12 months, is showing signs of cooling. The supply of homes on the market climbed to roughly four months in August, based on the current rate of sales, from a slim 1.7 months in January, says Lee Barrett, president of the Greater Las Vegas Association of Realtors.