Sunday, January 22, 2006
By DICK RILEY Columbian forecaster

There are signs of weakness for our area's housing market.

From 1991 to 1998, residential sales increased yearly, peaking at 8,347. In 1999 and 2000, sales of new and pre-owned homes dropped to 7,895 and 7,434, respectively, before beginning to climb again in 2001 to 8,194 sales and in 2002 to 8,609 sales.

Then the bubble started.

Mortgage interest rates at 5.125 percent produced strong demand and total home sales of 10,973 in 2003 and 11,784 in 2004, a record.

The median price of a new home went up from $168,000 in 2002 to $200,000 in 2004. During that same period, the median price of an existing home climbed from $153,500 to $174,000. Higher land prices and increased construction costs were the main contributors.

Total home sales in 2005 at 13,308 topped the 2004 record of 11,853.

Clark County historically has had bubbles with a sharp runup in prices, but they do not burst.

Prices and values level off and stay flat for a short period and then begin a slower rate of increase. Values on upper-end properties (over $500,000) will usually experience a slight decrease.

Rising housing inventory and higher loan interest rates could contribute to market weakness in the next six months. But "slowing" and "weakness" are relative terms. Is a 1,000-pound grizzly bear slower than a 990-pound bear? The cooling off will have some positive influences. Affordability for first-time buyers is a strong concern with median prices over $200,000. Many property owners could not afford to buy their present home. Some recent purchasers are upside down in their overall properties, owing more than they're worth.

The percentage of new homes as part of the total number sold increased from 27 percent in 1991 to a maximum of 35 percent in 1996. From 1996 onward, the percentage has consistently decreased to 23 percent in 2005.

The spinoff of new home sales has a ripple effect on the overall economy. New homes need new items, i.e. dishwashers, dryers, refrigerators, lawn mowers, televisions, landscaping, fences -- the list goes on.

This year is expected to be slightly weaker than 2004 and 2005. But that just means home values will remain more steady rather than jump another 30 percent as in 2005. There won't be any big dropoff.

The outlook for 2006

* Higher interest rates and more homes-for-sale inventory will cool the local market.

* Prices will moderate except for certain high-end luxury homes, which might experience some price declines.

* Inventories are expected to grow as higher interest rates and high prices cut buyers out of the market.

RESIDENTIAL REAL ESTATE: What might happen 20 years from now

As an economic forecast panel member for the past 20 years, I once predicted that we would never again see single-digit interest rates. Now, I'm asked to speculate about what might be going on in the real estate industry in the year 2026.

I expect the big will get bigger and the gap between the economy's haves and the have-nots will be huge. Big money sources will put together home sales transactions without mortgage brokers, appraisals or real estate agents.