Cracks in Teflon housing market

Triangle sales of existing homes and listing prices fall as brokers see the number of unsold homes grow

Sales of existing homes declined for the first time in almost four years last month and the number of houses on the market rose, as one of the Triangle's leading economic engines continued to sputter.

The region's housing market, which has been fueled by low interest rates and surging job growth, closed on 4.5 percent fewer sales in October. Meanwhile, the inventory of homes for sale grew by 6.6 percent, and the number of sellers cutting their listing prices jumped 17 percent.

Brokers blame the slowdown on competition from home builders offering incentives to move new homes, the inability of transplants to sell their old addresses and potential buyers attempting to wait out further price cuts on resales.

"We're going though a market adjustment, no question about that," said Bernard Helm, a market consultant who tracks Triangle residential trends. "The buyer today is going to wait for the pricing to soften."

Until recently the Triangle had avoided the spreading housing slump that has punctuated the industry's multiyear boom. The number of closings in the four-county region has risen each month since January 2003.

On Monday, the National Association of Realtors said that home sales declined 13 percent in the third quarter and that the national midpoint closing price this summer dipped 1.2 percent.

Triangle home prices continue to rise, with the average at $227,185, up 3.4 percent from a year ago. But hundreds of homeowners have sliced prices to sell their homes. In October, 37 percent of all listings -- 3,973 homes -- had price reductions, according to the Triangle Multiple Listing Service.

By cutting the listing price, sellers are able to move their houses more quickly than a year ago -- 72 days on average, compared with 82 days in October 2005.

Shields Pittman, a broker with York Simpson Underwood in Raleigh, said that his sales are down about 6 percent this year from a "world beater" 2005.

"If ... [buyers] aren't in a rush, they've got nothing to lose" except possibly higher interest rates later on, Pittman said.

Gordon Miller, founder of DNJ Mortgage in Cary, said that rising interest rates on variable-rate mortgages have frightened off some first-time and "move-up" buyers. In 2004, five-year, variable-rate mortgages were available for 3.75 percent; now the least expensive five-year variable-rates are at 5.75 percent. That higher rate raises the monthly mortgage payment on a $400,000 home to $2,334, an increase of $945 from 2004.

"Now people are waiting for the rates to come down, because they can't afford the payments," Miller said.

A prolonged housing slump could dampen Triangle economic growth as it depresses sales in a range of businesses from home improvement retailers to garden centers.

Michael Helmar, an economist for Moody's Economy.com, expects Triangle sales to continue to decline until at least mid-2007 or whenever the Federal Reserve moves to reduce interest rates.

"If the economy stays slow and fears of inflation go to the back burner, we could see a drop of a quarter of a point by the middle of next year," Helmar said. "But it's going to take lower rates and good solid job growth" for sales to begin to increase.