Housing bubble: Word on the street

June 24, 2005

Real estate market will slow, but not right away, most say

By Janis Mara
Inman News

There's no doubt the current breakneck pace of home sales and price appreciation will slow down, real estate professionals say, but probably not for at least another year and a half.

Talk of a real estate bubble has flared again, fueled by today's National Association of Realtors report that existing-home sales hit the second-highest pace on record in May. Professionals in the field had a wide variety of opinions, though almost all agreed that a slowdown, though inevitable, is not imminent.

"In the 18 years I've been in the field, this is the hottest I've ever seen the market," said Angela Ferrara, a Realtor who is corporate director of sales for The Marketing Directors, a sales and rental agency for luxury property in Manhattan.

"When we started pricing property at $800 a foot three years ago, we thought, 'Wow!' said Ferrara, whose company deals almost exclusively in new properties. "Then it went to $1,000 a foot and we thought, 'That's the number.' Now we're selling at $1,700 a foot.

"The growth will slow down," Ferrara admitted. However, she doesn’t think in Manhattan, prices will "bust." Rather, price gains might minimalize, she said.

"For at least another two years, we have a solid marketplace. We're good through mid-2007," Ferrara opined.

Gena Gilbert, a Realtor in Morehead, N.C., since 1994, says her area has its own little bubble that's not going to end for at least four or five years.

"We're just getting into the first part of it (the bubble)," Gilbert said. "We're a resort area and everything around us has built up. Our area has been one of the last to be developed."

For example, Gilbert said, she put an oceanfront lot on the market for $1.2 million, put it under contract for a couple of days and then put the property back on the market – for $1.5 million.

"And it won't take long for it to sell," Gilbert said.

"There were around 280 to 320 Realtors on our local board a few years ago. In the last year, it went up to 680 and it's like a feeding frenzy. Everybody's backed up – the attorneys, the surveyors, the appraisers. You have to wait three weeks to get an appraisal," the Realtor said. "Prices will continue to rise for four or five years."

A mortgage broker in Oakland, Calif., said there will be a correction, but no one knows when.

"This is a cyclical market. There is going to be a flattening of the market," said Zach Griffin, a mortgage broker with Holmgren & Associates in Oakland, Calif.

Griffin says it's unlikely that prices will see a huge drop in California.

"Just from my knowledge of demographics in California, there is so much immigration to this state and demand plays a huge role," Griffin said.

In contrast to Griffin, Gilbert and Ferrara, Mike Ramos, a Realtor in Reno, Nev., said a slight slowdown has already happened in his part of the country.

"My personal observation is we're finding properties staying on the market longer," said Ramos. "Some of the homes at the higher end, above $550,000 or $600,000, are staying on the market much longer than affordable homes in the $300,000 or low $400,000 range."

Some sellers are having to ratchet down their offering prices by maybe half of a percent or 1 percent, Ramos said. "We're finding price reductions hitting the market."

Last summer was hectic, Ramos said, but this summer won't be anything like it.

"Maybe this is not a downturn but a stabilizing position where this is the true market pace," Ramos said. "Last year was an aberration and maybe now it's where it really should be."

A broker in Hayward, Calif., focused on the industry's cyclical nature while addressing the question of a possible slowdown.

"We run in cycles. This has been an awfully long cycle, but the previous down cycle was longer than usual as well," said Lyman Menger, who has been a broker since 1973.

"This streak has been going on for several years. It started picking up after the lull in the middle 1990s and it has been a long sustained upward move since then, with the last two or three years being frantic in our area, though not in all areas of the nation," Menger said.

"Who knows for sure what the future will bring?" Menger said. "But, change is inevitable."

Michael Tessaro, a Realtor with Alain Pinel Realtors in Pleasanton, Calif., said "We have reached not a peak, but maybe the top of the market on price at the current moment."

Tessaro, who is also the president of the Bay East Association of Realtors in Pleasanton, Calif., said inventory is growing and buyers are having more time to think about offers.

"Right now there is a little bit of a slowdown. Peak time is spring," Tessaro said. "I think prices will flatten, maybe we might see some adjustment in prices, but as far as a bubble burst, I don't foresee it. The demand is so great, and we have such a short supply of housing in the San Francisco Bay Area."

Copyright 2005 Inman News

Contact ALTA at 202-296-3671 or communications@alta.org.