How Long Will the Housing Bust Last?

With existing home sales plunging 8.4 percent in 2006 – the biggest drop since 1982 – and new home sales plummeting 17.3 percent compared to the year before – the biggest drop since 1990 – there are lots of bargains to be had for those in the market for a new home. But have we reached a bottom and, if so, when will the real estate market actually recover?

Donald Tomnitz, chief executive officer of homebuilder D.R. Horton Inc., gave investors a glimmer of hope by saying he sees a bottom coming in mid-2007; however, he added, "we don't see any rapid improvement thereafter."

[Editor's Note: Sir John Templeton warns of market, housing crash – Read More Here]

Inventories of homes for sale are building as the spring buying season approaches. Many sellers who took their homes off the market ahead of the holidays are re-listing them.

According to The Wall Street Journal, for example, the Coldwell Banker Residential Brokerage office in Scottsdale, Ariz., outside of Phoenix, says listings are up roughly 30 percent since the end of December.

Condo inventories are especially high in many regions. It could take more than two years to work through condo inventories in some areas.

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"The supply of condos listed by real-estate agents is up 86 percent from a year earlier in the Las Vegas metro area, 43 percent in Washington, D.C., and 21 percent in the Northern Virginia suburbs of Washington," reports the WSJ. "In Florida's Miami-Dade and Broward counties, the listed condo supply has more than doubled from a year earlier."

Jack McCabe, a real-estate consultant in Deerfield Beach, Fla., tells the WSJ, "It's going to get bloody down here." McCabe estimates that the supply of condos for sale in Miami-Dade is enough to last 27 months at the current sales pace. And that's not including the 8,000 condos expected to be completed this year and another 12,000 in 2008.

According to McCabe, condo prices in the area have fallen around 8 percent – 10 percent last year, and will likely drop 20 percent in 2007. McCabe predicts that eventually, "hedge fund and other investors will step in to buy surplus condos in bulk at huge discounts."

San Diego County has 10,000 condos for sale, under construction, or conversions underway, which equals 20 months of inventory at the current sales rate, according to Peter Dennehy, a senior vice president at consulting firm Sullivan Group Real Estate Advisors. And that doesn't even include the several thousand condos up for sale by speculators and others, points out Dennehy. Dennehy says condo prices have fallen at least 15 percent to 20 percent in the San Diego area.

Foreclosures are also forcing more homes onto the market. DataQuick Information Systems, a research firm in La Jolla, Calif., tells the WSJ that mortgage lenders sent 37,273 default notices to California homeowners in the fourth quarter, up 145% from a year earlier and the highest in more than eight years.

There are signs that some buyers are coming back to the market. But if you're a seller, be prepared to negotiate and settle for less than what you expected.

Builders of new homes are offering big incentives to buyers – free upgrades, help with closing costs, etc. – which is making it harder for existing homes to compete in the marketplace.

In addition, lending standards have been tightened since the bust, making it harder for some prospective buyers to secure financing.

Lewis Glenn, president and chief executive of Harry Norman, Realtors in Atlanta, Ga. complains to the WSJ, "There's more negotiation." Norman says builders are cutting prices and offering concessions, such as buying down the borrower's mortgage rate.

In the Boston area, the real estate market is fairly healthy with lower-priced homes moving fairly quickly. However, ones that are overpriced or located on main streets are languishing, says Sam Schneiderman, broker-owner of Greater Boston Home Team. "It's got to be a really good deal," he tells the WSJ. "An OK deal doesn't quite cut it. Buyers are holding out."

In New Jersey, Jeffrey Otteau, president of Otteau Valuation Group Inc., an appraisal and research firm in East Brunswick, N.J. says, "I'm optimistic that home sales will begin to rebound in the spring. However, that would signal the end of the decline – not a return to higher prices."

Editor's note:
Sir John Templeton warns of market, housing crash – Read More Here
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