In the 4th quarter of 2006, home prices dropped in 73 markets out of 149 tracked, and the year-over-year decrease reached the record 2.7%. This is the deepest and most widespread price slump reported by the National Association of Realtors (NAR). In 4 metro areas, prices dropped by more than 10%, the Sarasota-Bradenton-Venice market scoring an 18% decline.
While some markets did show price gains, even double-digit price gains, the rest reported price deceleration or flat growth. The Midwest was affected by the slumping housing market the most, with an average price decline of 4.2%. In the South, houses were sold for 3.7% less than a year earlier, and in the Northeast prices went down 2.5%. The West was the only region to mark price gains in 2006, with houses selling for 0.4% more than in 2005. Honolulu, Little Rock and Binghamton are among the markets where home prices remained flat.
Atlantic City and Salt Lake City metro areas saw highest price gains, with more than 20% increases in single family home prices. Portland-Vancouver-Beaverton, El Paso and Seattle-Tacoma-Bellevue metro areas all ranked above the 10% gain level, while Springfield, IL, Palm Bay-Melbourne-Titusville and Sarasota-Bradenton-Venice all saw price drops of more than 10%. Elmira, NY, the nation’s cheapest market according to analysts, Durham, Appleton, Las Vegas-Paradise, Denver-Aurora and Detroit-Warren-Livonia metro areas all remained within the 0-1% price decline margin.
In the third quarter, only 45 markets reported price drops, but by the fourth quarter that number had reached 74. David Lereah, chief economist with the NAR, said in a statement that he believed the housing slump had reached the bottom in the 4th quarter of 2006. He also pointed out that the market would stabilize at record-high levels soon afterwards. The numbers for the beginning of 2007 have not yet been released, so it’s hard to tell whether his prediction for “improvement in both sales and prices” will prove accurate.
Price decreases were not unexpected after the ballooning growth over boom years. At a certain point, when new construction and speculation activity created an inventory that was way too high for the market, buyers, not sellers, became the market’s driving force. The simple demand vs. supply equation works out that once sales numbers started crumbling, so would prices. This is what happened in 2006. While the NAR predicts improvements early in 2007, skeptics believe the housing market will take much longer to recover from its current misbalanced state.
The median existing single-family home price was $219,300 in the last quarter of 2006, compared to $225,300 in 2005. NAR President Pat V. Combs suggested that home prices should be analyzed in the long term, not on year-over-year basis, since properties are usually owned for 5 years or more. Estimated price gains would then be much higher, because the housing boom and its consequences have not yet finally winded down.