With housing starts posting their biggest monthly decline in 14 years last month, many are wondering if slowdown in the nation’s red-hot housing market is now emerging.
One part of the country showing some signs of cooling is California. The Golden State’s sizzling real estate market has seen double-digit appreciation rates in most of its metropolitan areas in recent years, and some economists have even warned that the state’s housing market is a bubble waiting to burst, although such an event remains a matter of debate.
Bubble or not, while growth rates in some areas of the state remain strong, recent data show other parts of California are beginning to see their strong growth rates subside.
In San Francisco’s Bay Area, an area hit hard by the bursting of the dot-com technology bubble in 2000, median home prices hit a record $568,000 in March, rising 20 percent from one year ago according to DataQuick Information Systems, a California firm that tracks property transactions.
But in Southern California the housing market is not so robust.
While the median home price in March jumped more than 18.5 percent to $440,000, it was the first time in nearly two years that price appreciation failed to rise more than 20 percent, offering evidence that the region’s housing market is cooling.
Across the country, home sales remain healthy. Spring home sales have been stronger than expected, but price appreciation is expected to slow, especially in places like San Diego, where this year a staggering 70 percent drop from last year’s red-hot performance is expected.
Other cities, like Houston, also expect some softness. But some U.S. cities away from the red-hot coastal markets — like Atlanta, Denver, Cincinnati and Detroit — expect to see even better price appreciation in 2005 over 2004.
One thing keeping home prices high in hot markets is a lack of supply.
In California’s Ventura County, for example, some neighborhoods have no homes for sale. Many residents sold theirs six months ago, thinking they were selling at the market’s peak, and prices have run up so much that many homes now top $1 million, and some of them are taking longer to sell.
Why? Not because interest rates are rising, but because of property taxes. When you buy a home for $1 million, you’re going to need nearly $1,000 a month just to pay property taxes.
“When people sit down and look how much property taxes will be, and how much they will factor into their budget, it’s starting to have a major impact, especially in the higher-priced housing market,” said Rich McMillen, a Century 21 real estate agent in Ventura County.
It’s worse in states like Connecticut, New Jersey and Rhode Island, which begs the question: States complain about budget constraints, but with record housing sales and record home prices, where’s the property tax windfall?