Saturday, October 27, 2007

Dismal Housing – RTP

The housing situation in the RTP area continues to slide downhill. Most of the country caught the real estate flu and now we got the sniffles. It was just a matter of time until the national housing problems spilled over into our market; there is no shot that can make a local area immune to the symptoms. You can only hope to weather the storm better then many metro markets because the Raleigh area did not have an out-of-control ramp up in pricing over the past few years.

Recent headlines in the Raleigh News & Observer show the decline over the past few weeks. Builders are putting on huge discounts, houses are on the market for long periods of time, and sellers are dropping prices. While real estate brokers are complaining that they have not sold a home in weeks.

I have recently spent some time talking with builders and real estate agents while on the sidelines of soccer games. The general perspective is that homes in the $200K to $400K range are still selling well in the Raleigh area. These homes are generally affordable for RTP area professionals, and do not require jumbo or other unconventional loans which are now difficult to get.

Houses in the $500K plus range are a totally different matter. The wheels have ground to a halt in both re-sales and new homes in this price segment. The situation is even worse in the high-price townhouse and condo market.

Today’s local business headlines loudly proclaimed that “Home builders are dealin'” – Many have told me six months ago that “it would never happen here”. One line in the article spells it out – “Comstock is offering $75,000 off its Courtyard townhouses in North Raleigh's Wakefield Plantation, a 16 percent discount from the original $463,900 price. Discounts of $35,000 are available at Comstock's Kelton II townhouses in Cary's Preston neighborhood, a 10.5 percent cut.” So much for the critical “the prices on high-end townhouses won’t drop” feedback from several months ago, when I predicted this situation. After all, who wants to buy a 1400 square foot condo for $500K when a 2700sq foot house can be found for $350K just yards down the road.

The builders of townhouses have stopped handing out upgrades and free cars… and now have moved on to straight old-fashioned price cutting. And when they tell you that the “big” price discount is for this weekend only and you need to sign now – don’t believe them. Come back next weekend for an additional $30K off.

The recent statistics map out the gloomy Triangle housing picture. Overall, sales of existing homes were down 24% in September, the inventory of unsold homes rose 23.7 percent from one year ago, and pending sales were down 14 percent, falling to their lowest level in four years. The number of homes on the market with reduced prices was 50 percent higher than a year ago, and the number of withdrawn listings was up 19 percent. The number of home sellers who simply surrendered and allowed their listings to expire was up 52 percent.

In the words of Moody's economist Michael Helmar, who tracks Triangle housing, "That’s big. Your market is on a downward track, and it looks like there may be some more pain to go."

Will someone tell me when the roller-coaster reaches the bottom? I am afraid to open my eyes. However the screaming is the builders, real estate agents, and mortgage brokers; contrarily I would urge them to open their eyes and face reality.

Home builders are dealin'
In-your-face ads, major price cuts, aggressive tactics reveal a dour market

Housing market takes nasty turn
Triangle sales fall; more homes sit unsold; more sellers lower prices