Some real estate professionals may remember 2005 as the beginning of the end of the boom — the year when the housing market let out some steam and began to fall back toward Earth. Some super-heated markets cooled as interest rates climbed, for-sale inventory grew and home-price increases moderated.

This is the year that Federal Reserve Board chairman Alan Greenspan described “signs of froth” in the real estate market, where prices have in some instances risen to “unsustainable levels,” adding that, “we certainly cannot rule out declines in home prices, especially in some local markets.” His statements sent real estate industry groups scampering to shore up public confidence in the health of the market.

National statistics don’t paint a detailed picture of a localized real estate downturn, though, and 2005 was actually another smash hit for the U.S. real estate industry at large. Sales of existing homes are on track to beat last year’s record, according to National Association of Realtors statistics, and the rate of home-price appreciation is on pace to beat the 2004 rate.

For the first 10 months of the year, the rate of existing-home sales was about 4.6 percent above the rate for all of 2004. Median home prices in October were up about 17 percent from October 2004, the trade group also reported. But inventory of for-sales homes grew significantly in that time, too — the months’ supply of for-sale existing homes grew 14 percent.

The Realtor association’s chief economist, David Lereah, said in a statement in late November, “We are returning to more balanced markets between home buyers and sellers, one that places buyers on a more even footing. Housing activity has peaked and is coming down a bit, and we expect further cooling in the coming months.”

Lereah and several other industry economists have predicted a soft landing for the U.S. real estate market as opposed to a bursting bubble, though economists have also acknowledged that some local real estate markets could suffer more dramatic slips as the market turns.

As for new homes, price increases are on a slower pace this year than in 2004. While the median price for new homes jumped from $195,000 to $221,000, or 13.3 percent, from 2003 to 2004, the median new-home price for the first 10 months of 2005 is up about 3.2 percent compared to 2004, according to U.S. Census Bureau and U.S. Housing and Urban Development Department statistics. And while new-home sales increased about 10.8 percent from 2003 to 2004, that rate of increase has slowed to about 7.6 percent for the first 10 months of 2005 compared to the first 10 months in 2004.

The U.S. Office of Federal Housing Enterprise Oversight reported this month that average U.S. home prices increased about 12 percent in the third-quarter of 2005 over third-quarter 2004, down from 14 percent from second-quarter 2004 to second-quarter 2005. During the first half of the 1990s, year-over-year house-price increases were more commonly in the range of 2 percent or less.

The office’s chief economist, Patrick Lawler, noted in the Dec. 1 announcement that “price momentum in the Pacific and New England states, in particular, has pulled back,” and there is “some deceleration … in a number of the faster-appreciating markets.” House prices grew about 12 percent in the past year while the price of other goods and services increased about 4.5 percent, the office also reported.

Real estate agents in slowing markets have said that sellers are in some cases unrealistic about the value of their homes and the continuing rate of price appreciation, and this has led to high listing prices, fewer offers and longer time on market. Some buyers, they say, are getting priced out of the market by rising prices and interest rates.

Peter Casey, a past president of the Massachusetts Association of Realtors and president and CEO for Prudential Wilmot Whitney Real Estate in Weston, Mass., said, “The market is beginning to normalize, inventory is coming into balance. It’s not a frightening market.”

Sellers in his market area still “have an inflated vision of what their home is worth,” he said, though they will undoubtedly adjust to the changing market. “Eventually sellers will catch on,” he said.

Paul Sears, a broker-owner at Sears Real Estate in Springfield, Mass., said that properties in his market area were taking about twice as long to sell, on average, than in the prior year, though sales are still high.

An ocean away, in Hilo, Hawaii, some of the local buyers are getting priced out of the market, said Russell Arikawa, a Realtor at Ginoza Realty. “Low inventory and high prices are eliminating a lot of local buyers. They’re struggling, searching, searching,” he said.

Arikawa’s wife, Carol S. Ginoza-Arikawa, principal broker and owner of Ginoza Realty, said many of the buyers are from California and other Hawaiian Islands. The market is “slowing down a little bit,” she said.

In California, Realtor Joanne Dover of East Bay Real Estate Network, in the San Francisco Bay Area, said, homes that are priced right continue to sell quickly, but some sellers are slow to realize that prices are moderating. “The market is still good,” though some of the higher-end homes are taking longer to sell, she also said.

Robert Campbell, a real estate adviser and author of a real estate investment book, “Timing the Real Estate Market,” has a much more dire view of the California real estate market. “I believe the California housing market is a bubble that is nearing its final hours,” he wrote in a Nov. 14 real estate advisory for Southern California investors. “It could be a rerun of the stock market bubble in the 1990s,” he said, adding, “I believe a 40 percent price correction is likely” in California.

“As the California housing mania ends and the concept of risk returns to its rightful place, there is going to be a rush for the exit doors,” he also wrote.

The condo market is coming out of the clouds in some parts of the country that saw feverish construction and investor activity over the past few years, Inman News has reported, and experts have cautioned that some parts of the country are at risk of building too many condo units too fast for the market to absorb. The Mortgage Bankers Association, in a September report, “Housing and Mortgage Markets: An Analysis,” for example, cautioned that, “historically condos have experienced a greater level of price volatility” than the general housing market.

The report also stated, “The ability of apartment owners and developers to quickly bring a large number of condo units onto the market is a risk factor in certain markets. A sudden ramp-up in supply could lead to a decline in prices.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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