Article by Steve Kerch LOS ANGELES (CBS.MW) -- Homeowners concerned that housing prices will drop in the near future as they prepare to sell, and potential homebuyers waiting to pounce on such an opportunity, will find that in almost all areas of the country their fears and hopes are groundless. Talk that there is some sort of housing "bubble" that is close to bursting was only that -- talk -- at a conference on the U.S. housing market here this week. Dozens of experts looked at the topic from any number of directions, with near unanimous agreement that home prices, while overheated in some places, are in no danger of collapse. "What we've seen is 12 years of steady increases in home prices and in sales volumes. Yet there is literally no inventory overhang of homes outside of market to market fluctuations," said Patrick Stone, CEO of Fidelity National Information Services, a provider of technology and data to the real estate industry. With supply and demand in good balance, Stone said it is most likely that in areas where home prices have shot up recently, that trend will simply level off for several years. In most markets in the country, where appreciation has been steady but not spectacular, the same pattern should hold, he said. Demand Remains Strong "The market is really sweet right now," said John Karevoll, an analyst with DataQuick Information Services. "The ability of virtually all home-buying categories to buy is good right now, better than it has ever been." It is the monthly payment, not the actual cost of a home, that concerns consumers. "People don't write a check for the sales price of a house. They write a check at the end of each month and if they can write it comfortably, they go on," Karevoll said. Even in Southern California, where markets such as San Diego have seen prices go up 25 percent or more in the last year, you can argue the market isn't overheated, Karevoll said. For one thing, the number of homes today that are being "flipped"-- bought and then resold in under a year solely to make a quick profit -- is about one-tenth what it was in 1989-90, before the last drop in California home prices. Plus, monthly payments on average are the same today in raw dollars as they were in 1989, Karevoll said. Of course, those numbers reflect in large part the sharp decline in interest rates, a fact that has many analysts worried what would happen to the housing market should rates reverse course dramatically. But for homeowners who have locked in a long-term fixed rate at today's levels, which more than 80 percent have done, that debate is moot. An informal poll of economists at the Inman New "Summit on the U.S. Real Estate Market," which concluded here this week, found everyone in agreement that mortgage rates were likely to rise to about 6 1/2 percent by the end of 2003. But there was a growing undertone among analysts that rates may in fact have more room to fall, rather than rise. "The fact that the U.S. economy is weak right now gives us confidence that if rates do rise, they won't rise much," said David Stiff, senior economist with Case Shiller Weiss. "The chance that interest rates are going to knock the bottom out from under this market isn't there," said Ken Goldstein, an economist with the Conference Board. Economic Fundamentals 'OK' Economic indicators other than interest rates would not seem to favor housing. Consumer confidence, for one, is nowhere near its peak levels of the last expansion. But underneath the overall number is a surprising one: consumer confidence in buying a house or a car has not moved much in recent years. "People still feel confident enough to make large purchases," Stiff said. "(Confidence) is a different kind of thing when you're buying a house," said Goldstein, whose employer produces consumer-confidence numbers. "When most people buy, where they are now compared to where they were three months ago or where they'll be in three months isn't important. They are looking at where they'll be in five or 10 years, where they could be down the road." Raphael Bostic, an economist with the USC Lusk Center for Real Estate, argues that employment and consumer confidence have as much to do with the housing purchase as interest rates and that only a jump on the order of two percentage points or more would shake the market. "Psychologically, there is the fear of uncertainty present in a lot of the economic statistics today. But the fundamentals seem to be fairly OK. I'm not going to jump up and down about them, but they're OK," he said. One other piece of evidence that home-price gains are real: Speculative activity appears insignificant in most housing markets. Few home shoppers are buying because they are seeking an investment and few homeowners are selling because they seek to cash in on price gains, according to a survey from HomeGain, an online real estate service company. Rational Buyers and Sellers Just over one-third of homebuyers say their main reason for purchasing a house is that they no longer wish to rent. Another 23 percent say they need a bigger house. Only 5 percent are looking for rental income, a sure sign of investment motivation, a percentage that is the same as those buying because they are attracted to a new community or because they have added a family member. "Those percentages haven't changed to a great degree over the last six months," said Bruce Schroder, HomeGain CEO. When sellers were asked why they put their home on the market, 24 percent said they wanted to move up to a bigger house, 18 percent said they were relocating for job or other considerations, 9 percent were retiring, 9 percent wanted a smaller home and 9 percent were attracted to a new community. Twenty-three percent of sellers did cite some other driving force for the sale, a figure that could include those fearful a price bubble may be about to burst. But for now, "our 12-month forecast is for increasing home prices in every metropolitan area we cover," Stiff said.
January 18, 2003