Market Corrections: Housing market stays strong

Median prices for new homes were down 11 percent nationally in April from March, according to the U.S. Census Bureau, and down about the same percentage from April 2006.

Average home prices in Springfield, meanwhile, are down only 2.8 percent in April from March, according to the Greater Springfield Board of Realtors, and prices are actually up slightly from the same time last year. GSBOR’s statistics reflect new and existing home sales.

Trent Cowherd of Cowherd Construction said his home sale prices are down some, primarily due to a slight decrease in construction costs, specifically copper, lumber and sheet materials such as plywood.

Even slightly lower prices in Springfield are not necessarily bad news, according to Matt Morrow, executive officer of the Home Builders Association of Greater Springfield. He said the downturn in prices and in the number of new and existing homes sold – March and April 2007 were down 12.3 percent and 9.3 percent, respectively, from 2006 – is a natural correction in the market.

“It’s the way you’d like to see the cycle work. If you don’t get periods like this, the market doesn’t have a chance to recharge,” Morrow said, noting that home appreciation was near double digits 2002–2005. “It can’t keep that up forever. It’s not good to do that, because the number of people who could afford to buy a home would shrink considerably.”

GSBOR President Scott Rose agreed, noting that prices for the first few months of 2007 are basically unchanged from 2006, when the Springfield market recorded its third-highest number of sales ever.

“I feel like as far as existing homes, the market here is strong,” Rose said. “When you have a record year like that, the next year isn’t going to look as good, but it’s just the market self-correcting.”

Slowed appreciation in home values also could explain the lower number of sales, Rose said. When appreciation slows, investors tend to leave the market because the odds of making significant profits from buying, rehabbing and reselling homes are lower.

“It’s more a typical market now, where you have the actual homeowners in the market looking to buy,” Rose said.

Money tightening?

Morrow also pointed to another possible cause of lower home prices – tightening of money supplies.

“Right now, banks are being tighter with their lending practices, which is probably a good thing,” Morrow said. “With the market being a little bit softer than it was, lenders are just being more careful about how they loan money on projects.”

Mortgage rates could slow the market somewhat, according to Aaron Jernigan, president of mortgage loans for The Signature Bank, where rates have risen nearly half a point – to 6.5 percent as of June 6 – since mid-May. The increase, however, doesn’t seem to have slowed business at The Signature Bank; Jernigan said mortgage loans there are up 12 percent year-to-date to $83 million.

Cowherd said that, while higher interest rates – up more than 1 percent since their historic lows around 5 percent in mid-2003 – might not be deterring potential buyers, the rates are making buyers look at more affordable home options.

“On a $200,000 home, an extra 1 percent … that has pushed people down to a little bit less than what they may have gotten otherwise,” Cowherd said.

While interest rates are up, Jernigan said there are still plenty of loan options in what is definitely a buyer’s market.

“Some of the higher-end homes may be sitting a little bit longer, but there’s still a lot of first-time homebuyers taking advantage of available loans,” Jernigan said. He pointed to new loan products, such as 40- and 50-year mortgages, that have hit the Springfield market in the last two years.

‘Media hype’

Cowherd said that his volume of sales is actually making quite a comeback – sales were very slow, he said, in the last half of 2006. Part of what may have kept buyers away, he added, is the news of a national slowdown.

“The media hype about it being a bad time to buy started to sink in and people started backing off on purchasing,” Cowherd said. “Now, it’s been a while, and those who were planning on buying saw that nothing happened, no bubble broke, and they’re back out there.”

With the strength of the local market, Realtor Rose said he worries about the negative impact doomsday reports about national home prices could have here in the future.

“The hardest thing is educating people here not to listen to that news,” Rose said, noting that national figures are skewed because of large cities such as Detroit, where economic problems are weighing down housing prices.

“Our economy and employment are doing well here, and our market hasn’t taken that hit.”