Newsday Article: Housing bubble not ready to pop
Though it is true interest rates have risen and the market is no longer a seller's dream, history says fears of real estate collapse are unfounded
BY RANDI F. MARSHALL
STAFF WRITER
January 22, 2006
The sky isn't falling.
Despite widespread fears of a housing bubble ready to burst and prices ready to plummet, a Newsday analysis of 25 years of Long Island sales data finds little support for the idea. Based on historical norms in data compiled from records of the Long Island Multiple Listing Service, Newsday has found a housing market that may be softening, but still has rising prices and little evidence of a glut. Indeed, if history is any indication, the economic trends point to a relatively harmless landing, without the trappings of a huge falloff.
According to the data, which extend back to 1980:
The supply of homes on Long Island has significantly increased from even a year ago but remains far below the levels of the early 1990s bust. As of December, it would take seven months to sell all the homes on the market in Suffolk County at the current sales pace, and six months in Nassau County. That's the most since 1997, but nowhere near the highs set back in 1990 and 1991, when Nassau reached 18 months and Suffolk reached 19.5. The nationwide average supply right now hovers around five months.
Even amid signs of a soft market, prices were still posting annual double-digit percentage gains as of the end of 2005. Suffolk County's median price rose 10.5 percent to $400,000 as of December, while Nassau's increased 10.3 percent to $482,000.
Queens is seeing similar trends, with housing inventory up 64 percent and median prices up 18.3 percent from December 2004 to December 2005. The borough's median price stood at $460,000 last month. Queens data, however, are more volatile, don't include most condos and co-ops, and many of the borough's sales occur outside Long Island's Multiple Listing Service, making the statistics less complete.
Despite widespread talk of a coming crash, there's little historical basis for it. In the past 25 years, the worst year-over-year decline, measured as of December, was a modest 8 percent for median prices in Suffolk County and 7 percent in Nassau County, both in 1990. What's more, declines were very rare: Median prices fell in no more than four of those 25 years, and the longest consecutive decline lasted only two years, 1989-90, when prices fell by less than 10 percent.
To be sure, such declines can cause real damage when measured in dollars. Area residents who bought homes just before the two-year falloff needed about 10 years to recoup the lost value - a problem if they needed to move out - and anyone who went through that bust would say it wasn't pretty, with even good houses sitting unsold for months. And a 10 percent decline from today's levels would translate into $40,000 to $50,000 if an owner were forced to sell.
Times have changed
But the economic picture is far different now than in the early 1990s. It was a time of a weak economy, job losses and far higher interest rates. Business on the Island was far less diversified and far more dependent on a single industry: defense. Now, all of those factors are in far better shape, leading most experts to say the housing market's landing will be soft and relatively painless for most homeowners.
"I've seen bad markets," said Kate Rossi, president of Coldwell Banker Residential Brokerage, which covers Long Island and Queens. "This is not a bad market."
The real test, experts say, will come this spring, the traditional high point for sales when buyers and sellers will see how good - or bad - the market really is. It is certainly, however, a changing market, in which sellers and buyers must shift attitudes and strategies, experts say, and there may be pockets of price declines in some regions and price ranges.
"The bottom is not going to fall out," said Martin Cantor, chief economist of Sustainable Long Island, an advocacy group. "We're going to find a new equilibrium, and right now we're just searching for that equilibrium."
Of course, those forecasts can't account for the possibility of a nationwide economic slump, or interest rates that go sky-high. Already, the 30-year fixed mortgage rate jumped to 6.27 percent in December, from 5.75 percent a year earlier. If the rates go much higher or the economy turns south, some observers say, a housing downturn is more likely.
"I lived through the complete blowout in the late 1980s and I don't see a whole lot different," said Beth Marten, who heads the Home Buyers Resource Center, a real estate agency that represents buyers. "I see a very similar perfect storm evolving."
Demographics play a role, too, as baby boomers and seniors look to sell their homes and move into something smaller, whether on or off the Island. Many sellers say high property taxes and energy prices also make it time for them to sell.
All told, the region's real estate inventory has increased 58 percent from December 2004 to December 2005, when there were 21,201 homes up for sale, according to Multiple Listing Service statistics.
Sales, meanwhile, continued to rise, too. The three counties together posted a record 34,528 home sales in 2005, according to the latest Multiple Listing Service data. That's a 6.5 percent gain from 2004.
Will these trends last?
In the short term, those trends mean a higher number of houses for sale, without the demand to meet it. "The buyers aren't breaking down my doors," Marten said. "I wish they were."
But it may just be a matter of time before those houses sell. Even with the slowdown, there are still reports of bidding wars for well-priced, good-looking homes. A Wantagh three-bedroom, two-bath ranch listed for $569,000 got 13 offers in three days earlier this month, many near or above asking, according to Century 21 Your Home broker Don Scanlon in Wantagh.
"Can I say the market is slowing?" he asked. "Not if I get 13 offers on one property."
Despite widespread fears of a housing bubble ready to burst and prices ready to plummet, a Newsday analysis of 25 years of Long Island sales data finds little support for the idea. Based on historical norms in data compiled from records of the Long Island Multiple Listing Service, Newsday has found a housing market that may be softening, but still has rising prices and little evidence of a glut. Indeed, if history is any indication, the economic trends point to a relatively harmless landing, without the trappings of a huge falloff.
According to the data, which extend back to 1980:
The supply of homes on Long Island has significantly increased from even a year ago but remains far below the levels of the early 1990s bust. As of December, it would take seven months to sell all the homes on the market in Suffolk County at the current sales pace, and six months in Nassau County. That's the most since 1997, but nowhere near the highs set back in 1990 and 1991, when Nassau reached 18 months and Suffolk reached 19.5. The nationwide average supply right now hovers around five months.
Even amid signs of a soft market, prices were still posting annual double-digit percentage gains as of the end of 2005. Suffolk County's median price rose 10.5 percent to $400,000 as of December, while Nassau's increased 10.3 percent to $482,000.
Queens is seeing similar trends, with housing inventory up 64 percent and median prices up 18.3 percent from December 2004 to December 2005. The borough's median price stood at $460,000 last month. Queens data, however, are more volatile, don't include most condos and co-ops, and many of the borough's sales occur outside Long Island's Multiple Listing Service, making the statistics less complete.
Despite widespread talk of a coming crash, there's little historical basis for it. In the past 25 years, the worst year-over-year decline, measured as of December, was a modest 8 percent for median prices in Suffolk County and 7 percent in Nassau County, both in 1990. What's more, declines were very rare: Median prices fell in no more than four of those 25 years, and the longest consecutive decline lasted only two years, 1989-90, when prices fell by less than 10 percent.
To be sure, such declines can cause real damage when measured in dollars. Area residents who bought homes just before the two-year falloff needed about 10 years to recoup the lost value - a problem if they needed to move out - and anyone who went through that bust would say it wasn't pretty, with even good houses sitting unsold for months. And a 10 percent decline from today's levels would translate into $40,000 to $50,000 if an owner were forced to sell.
Times have changed
But the economic picture is far different now than in the early 1990s. It was a time of a weak economy, job losses and far higher interest rates. Business on the Island was far less diversified and far more dependent on a single industry: defense. Now, all of those factors are in far better shape, leading most experts to say the housing market's landing will be soft and relatively painless for most homeowners.
"I've seen bad markets," said Kate Rossi, president of Coldwell Banker Residential Brokerage, which covers Long Island and Queens. "This is not a bad market."
The real test, experts say, will come this spring, the traditional high point for sales when buyers and sellers will see how good - or bad - the market really is. It is certainly, however, a changing market, in which sellers and buyers must shift attitudes and strategies, experts say, and there may be pockets of price declines in some regions and price ranges.
"The bottom is not going to fall out," said Martin Cantor, chief economist of Sustainable Long Island, an advocacy group. "We're going to find a new equilibrium, and right now we're just searching for that equilibrium."
Of course, those forecasts can't account for the possibility of a nationwide economic slump, or interest rates that go sky-high. Already, the 30-year fixed mortgage rate jumped to 6.27 percent in December, from 5.75 percent a year earlier. If the rates go much higher or the economy turns south, some observers say, a housing downturn is more likely.
"I lived through the complete blowout in the late 1980s and I don't see a whole lot different," said Beth Marten, who heads the Home Buyers Resource Center, a real estate agency that represents buyers. "I see a very similar perfect storm evolving."
Demographics play a role, too, as baby boomers and seniors look to sell their homes and move into something smaller, whether on or off the Island. Many sellers say high property taxes and energy prices also make it time for them to sell.
All told, the region's real estate inventory has increased 58 percent from December 2004 to December 2005, when there were 21,201 homes up for sale, according to Multiple Listing Service statistics.
Sales, meanwhile, continued to rise, too. The three counties together posted a record 34,528 home sales in 2005, according to the latest Multiple Listing Service data. That's a 6.5 percent gain from 2004.
Will these trends last?
In the short term, those trends mean a higher number of houses for sale, without the demand to meet it. "The buyers aren't breaking down my doors," Marten said. "I wish they were."
But it may just be a matter of time before those houses sell. Even with the slowdown, there are still reports of bidding wars for well-priced, good-looking homes. A Wantagh three-bedroom, two-bath ranch listed for $569,000 got 13 offers in three days earlier this month, many near or above asking, according to Century 21 Your Home broker Don Scanlon in Wantagh.
"Can I say the market is slowing?" he asked. "Not if I get 13 offers on one property."
That's not the norm anymore. But the traditional desire to own a home, the need for growing families to find a place to live, and the desirability of Long Island still keeps buyers coming.
That's what brought Dean and Aimee Bennett to Baldwin. The couple was renting an apartment in Hauppauge with their 10-month-old daughter, Kayla, but knew they wanted more space - and wanted to buy.
"It's very cost prohibitive on Long Island to go from renting to home ownership," said Dean Bennett, who works for Nassau County government. "But you just have to be persistent."
That persistence paid off for the Bennetts, who hope to close next month on a $390,000 three-bedroom Cape Cod. They timed their purchase to lock in their interest rate and seal the deal before more buyers flooded the market, Bennett said. "It was all about timing," he added.
But as the buyers gain the advantage, sellers are feeling the pressure. Take Jonathan and Rosemarie Kimball. After more than 30 years in their Shirley home, they bought a house in Las Vegas and put their house on the market in October, pricing it at $369,000.
But there were no takers.
Kimball, it seems, chose a tough time to sell. The market had begun to shift- but no one knew it yet. "That's always been my luck," Jonathan Kimball, 61, said ruefully as he learned of the market's shift. "I wish I had put it on the market six months earlier. It probably would have sold in a blink."
The Kimballs have dropped the price by $10,000 and aren't ruling out lowering it again, but they're also willing to wait.
Once the house is priced right, real estate agents said, it's sure to sell. "If in every price range, we had 10 more houses priced well, we'd have them all sold," said Carol Tintle, a regional vice president for Daniel Gale.
Finding the right deal
That's perhaps even more true in Queens, where the supply of cooperative and condominium apartments, and even single-family homes, is also far higher than it was a year ago. Inventory at Century 21 Benjamin, which covers all three counties, is up by nearly three times, according to broker/owner Ed Gitlin. In Queens, however, the sales of that inventory are stronger, he said. "Demand is still high, the shortage of land is still there and interest rates are fine," Gitlin said.
Just this month, for instance, Lorraine Martinez bought a one-bedroom co-op in Forest Hills, spending $166,000. "I think I got a really good deal," she said. "There was a lot of supply and I found it pretty quick."
Even if a small downturn in prices does occur, experts say, the run-up of the last several years will cushion the impact for many homeowners, especially those who bought before the upturn or plan to stay in their homes for years to come. "It's only collapsing from a fake high, in my opinion," said real estate broker Katy Anastasio, who owns Anastasio Associates in Huntington.
For buyers who are getting in the game now, there's more concern. If the market does see price declines, they will have bought at the high. If they need to get out, and in particular, if they have little or no equity, they could be in trouble. "I worry that I bought at the wrong time," Martinez said. "I'm hoping that prices don't go down now. But it was the right time for me."
What glut?
By historical standards, the housing market still is relatively strong on Long Island, based on available supply. These statistics represent the number of months it theoretically would take to sell all of the homes on the market at current rate of sales.
(Figures are rounded and represent data as of Decemeber of each year.)
$482,000
That's what brought Dean and Aimee Bennett to Baldwin. The couple was renting an apartment in Hauppauge with their 10-month-old daughter, Kayla, but knew they wanted more space - and wanted to buy.
"It's very cost prohibitive on Long Island to go from renting to home ownership," said Dean Bennett, who works for Nassau County government. "But you just have to be persistent."
That persistence paid off for the Bennetts, who hope to close next month on a $390,000 three-bedroom Cape Cod. They timed their purchase to lock in their interest rate and seal the deal before more buyers flooded the market, Bennett said. "It was all about timing," he added.
But as the buyers gain the advantage, sellers are feeling the pressure. Take Jonathan and Rosemarie Kimball. After more than 30 years in their Shirley home, they bought a house in Las Vegas and put their house on the market in October, pricing it at $369,000.
But there were no takers.
Kimball, it seems, chose a tough time to sell. The market had begun to shift- but no one knew it yet. "That's always been my luck," Jonathan Kimball, 61, said ruefully as he learned of the market's shift. "I wish I had put it on the market six months earlier. It probably would have sold in a blink."
The Kimballs have dropped the price by $10,000 and aren't ruling out lowering it again, but they're also willing to wait.
Once the house is priced right, real estate agents said, it's sure to sell. "If in every price range, we had 10 more houses priced well, we'd have them all sold," said Carol Tintle, a regional vice president for Daniel Gale.
Finding the right deal
That's perhaps even more true in Queens, where the supply of cooperative and condominium apartments, and even single-family homes, is also far higher than it was a year ago. Inventory at Century 21 Benjamin, which covers all three counties, is up by nearly three times, according to broker/owner Ed Gitlin. In Queens, however, the sales of that inventory are stronger, he said. "Demand is still high, the shortage of land is still there and interest rates are fine," Gitlin said.
Just this month, for instance, Lorraine Martinez bought a one-bedroom co-op in Forest Hills, spending $166,000. "I think I got a really good deal," she said. "There was a lot of supply and I found it pretty quick."
Even if a small downturn in prices does occur, experts say, the run-up of the last several years will cushion the impact for many homeowners, especially those who bought before the upturn or plan to stay in their homes for years to come. "It's only collapsing from a fake high, in my opinion," said real estate broker Katy Anastasio, who owns Anastasio Associates in Huntington.
For buyers who are getting in the game now, there's more concern. If the market does see price declines, they will have bought at the high. If they need to get out, and in particular, if they have little or no equity, they could be in trouble. "I worry that I bought at the wrong time," Martinez said. "I'm hoping that prices don't go down now. But it was the right time for me."
What glut?
By historical standards, the housing market still is relatively strong on Long Island, based on available supply. These statistics represent the number of months it theoretically would take to sell all of the homes on the market at current rate of sales.
(Figures are rounded and represent data as of Decemeber of each year.)
$482,000
December median selling price in Nassau County
$400,000
$400,000
December median selling price in Suffolk County
1981
Median selling prices:
Nassau, $67,500
Suffolk, $51,500
1985
39% year-to-year increase in median selling price in Suffolk; Nassau, 25%
1990
Peak slowdown:
Prices fall 8.3% in Suffolk; Nassau values down 6.6%
1996
Modest gains Islandwide; median selling price in
Nassau, $175,000
Suffolk, $137,300
2002
The boom:
Prices soar 23% in Nassau; 30% in Suffolk
Months to sell Months to sell
1981
Median selling prices:
Nassau, $67,500
Suffolk, $51,500
1985
39% year-to-year increase in median selling price in Suffolk; Nassau, 25%
1990
Peak slowdown:
Prices fall 8.3% in Suffolk; Nassau values down 6.6%
1996
Modest gains Islandwide; median selling price in
Nassau, $175,000
Suffolk, $137,300
2002
The boom:
Prices soar 23% in Nassau; 30% in Suffolk
Months to sell Months to sell
Year Suffolk County Nassau County
1980 8.1 4.9
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1981 10.0 7.9
1982 10.1 7.2
1983 6.1 4.5
1984 7.2 6.8
1985 10.9 8.3
1986 9.5 8.2
1987 9.7 9.7
1988 14.1 13.9
1989 18.8 16.4
1990 19.1 18.3
1991 19.5 18.0
1992 15.8 14.7
1993 16.2 14.4
1994 16.1 13.6
1995 14.7 13.7
1996 12.0 11.5
1997 9.1 8.4
1998 6.2 5.6
1999 5.3 5.0
2000 4.7 5.0
2001 5.4 5.5
2002 5.0 4.4
2003 4.6 4.3
2004 5.0 4.1
2005 7.2 6.2
1980 8.1 4.9
1982 10.1 7.2
1983 6.1 4.5
1984 7.2 6.8
1985 10.9 8.3
1986 9.5 8.2
1987 9.7 9.7
1988 14.1 13.9
1989 18.8 16.4
1990 19.1 18.3
1991 19.5 18.0
1992 15.8 14.7
1993 16.2 14.4
1994 16.1 13.6
1995 14.7 13.7
1996 12.0 11.5
1997 9.1 8.4
1998 6.2 5.6
1999 5.3 5.0
2000 4.7 5.0
2001 5.4 5.5
2002 5.0 4.4
2003 4.6 4.3
2004 5.0 4.1
2005 7.2 6.2