Housing market cooling, but not crashing

The housing boom has ended.

But that doesn't mean a real estate bust. In most markets across the country, home sales continue at a brisk pace. And in some metros, prices are rising even as fewer houses are selling.

"It's not like we're seeing this market go from red-hot to icy cold," says Mark Vitner, senior economist with Wachovia Corp. "It's still pretty good when you look at the total number of sales."

The numbers show housing sales in many markets have slipped from the hot pace of the past few years. Those record years were driven by rock-bottom mortgage interest rates, easy credit, increasing investor interest in real estate and population increases. But rates have risen, credit is tightening and investors in some areas are getting cold feet.

Now the National Association of Realtors reports that existing home sales rose slightly to an annual rate of 6.92 million units in March from February's 6.9 million. But that was down from 6.97 million units in March 2005.

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"This is ... evidence that we're experiencing a soft landing," says NAR chief economist David Lereah. "We may see some minor slowing in home sales as interest rates rise, but the market is clearly stabilizing."

Housing inventory stood at 3.4 million units available at the end of March, a 5.5-month supply. Lereah also points to the median existing home price of $218,000, up 7.4 percent but below the torrid double-digit growth of past years, as evidence of a slower but steadier market.

"We now see appreciation cooling to single-digit rates of growth — another sign that the markets are stabilizing," Lereah says in a release.

NAR's pending home sales index — a measure of transactions in which a contract has been signed but the deal hasn't been closed — fell 6 percent in March from its level of a year ago.

Lereah, in an April report, says he expects housing sales to move up and down throughout the year nationally, while remaining at historically high levels. He says that economic growth and job creation are strong enough to temper the impact of rising mortgage interest rates, which he expects to climb this year to 6.9 percent for a 30-year fixed mortgage. Add that up and it doesn't amount to the sound of a bursting bubble; it's more like the third-strongest year on record.

Vitner's not as optimistic. In a regional economic review released in April, he and his colleagues at Wachovia said they expected a 20 percent pullback in sales of new and existing homes over the next couple years.

But, Vitner says, the pullback is not a crash.

A strong economy and population growth are likely to drive long-term growth in price of housing. Prices are expected to rise in the mid- to high single digits in most markets, according to the Wachovia report.

"The economy is strong and has been strong for the last several years," Vitner says. "It's hard for me to see an overall slowdown."

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