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A U.S. Regional Housing Slowdown

18 Aug 06

New data from the National Association of Realtors indicates that the nation's housing markets are slowing in all regions. Sharp declines in home sales have occurred in states where home prices have soared recently, while price appreciation has slowed or flattened in most metropolitan areas.

On August 15, the National Association of Realtors (NAR) released data for existing home sales by state in the second quarter of 2006. The data confirmed what most had suspected: the nation’s housing markets continue to cool following several years of record sales, construction, and price increases. Nationally, existing home sales declined 7% from the record-setting second quarter of 2005. At the state level, the NAR reported lower sales in 28 states and in the District of Columbia, while sales were higher in 20 states. Two states, Idaho and New Hampshire, did not have sufficient data for the calculation. Global Insight’s Real Estate Service estimates that sales in New Hampshire fell 10.8%, while sales in Idaho increased 0.9%.

The distribution of increases and decreases across states should not come as too much of a surprise. The table below shows the new NAR data for the top-10 and bottom-10 states, according to sales growth; all numbers are percent changes, annual averages. The second column lists the change in the median price of a single-family home over the two years leading to first-quarter 2006.

Home Sales

2005Q2 to 2006Q2

Median Price

2004Q1 to 2006Q1

Home Sales

2005Q2 to 2006Q2

Median Price

2004Q1 to 2006Q1

Still Growing

On the Decline

Alaska

48.6

13.3

New Jersey

-16.3

13.8

Arkansas

17.9

9.0

Maryland

-16.5

16.2

Texas

11.3

6.5

Hawaii

-18.0

21.4

North Carolina

11.0

8.5

North Dakota

-19.5

26.1

Vermont

9.2

14.8

Minnesota

-19.6

9.9

South Carolina

9.0

9.5

Nevada

-23.5

9.8

Tennessee

6.5

8.2

Virginia

-23.9

26.7

New Mexico

6.2

13.5

California

-25.3

19.4

Wyoming

5.7

13.8

Florida

-26.8

23.7

Georgia

5.3

7.6

Arizona

-26.9

24.0

Average

13.1

10.5

Average

-21.6

19.1

The top-10 states have experienced average price increases of 10.5% over the past two years, while the 10 states seeing the biggest sales declines have had price gains nearly twice that. There are many factors contributing to home sales, but it is clear that reduced sales in the bottom-10 states are partly a response by consumers to rapidly escalating prices.

The housing industry is a notoriously cyclical one. Homeowners often respond to rising prices by putting their house on the market in the hope of moving up into a bigger, better, or newer one. Homebuilders respond by increasing construction. Backing out of the market, though, often occurs more gradually. The slowdown in sales will result in a runup in the inventory of homes for sale, which is already being seen in the data. Those rising inventories put pressure on prices to either flatten or fall. More information on prices by state will be released by OFHEO on September 5.

Prices by Metropolitan Area. The NAR also released price data for single-family homes in 151 metropolitan areas, and condominium prices in 57 metro areas. These data also show that the housing market has moderated. Nationally, the median price of an existing single-family home in the second quarter of 2006 was up 3.7% from a year earlier. But that was down from price growth of 13.6% and 10.3%, respectively, in the fourth quarter of 2005 and first quarter of 2006. Condo prices in the aggregate fell by 0.3%, compared with 12.3% and 5.2% gains in the last two quarters.

Prices for single-family homes increased by double digits in about one-fourth of the metro areas covered. Baton Rouge, LA (27.3%), Ocala, FL (25.3%), and Virginia Beach-Norfolk-Newport News, VA (23.6) were the only three to break the 20% mark. Outright price declines were recorded in 26 metro areas, concentrated in the Northeast and Midwest.

by Luke Tilley

 
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