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Local Realtors Expect Strong Sales to Continue

It comes as no surprise to Walter Molony that after five consecutive years of record-topping home sales nationwide, a slowdown is predicted for 2006.

"You can't keep setting records every year," said Molony, a spokesman for the National Association of Realtors.

Unprecedented boom. For the last five years, the housing market has been booming nationwide. It reached its peak in 2005. While NAR predicts a slowdown in 2006, Molony said he expects sales to remain strong.

Nationally, existing home sales are slated to rise 4.7 percent to $7.1 million in 2005. Next year, a decline of about 3.7 percent to $6.84 million is expected. Likewise, new home sales are projected to increase 7 percent to $1.29 million in 2005, then drop 4.8 percent to $1.23 million in 2006.

Even with the decline in both markets, 2006 is forecast to be the second best year in the real estate market, falling only behind 2005.

Memphis market. Local real estate professional William Mitchell said he doesn't believe the drop will be as significant in the Memphis area as it could be in certain hotspots - California, parts of Florida, Las Vegas and New York, to name a few.

"We're optimistic about the local real estate market," said Mitchell, president-elect of the Memphis Area Association of Realtors. "Memphis is more of a consistent market for real estate. We don't experience the high highs or the low lows."

Kirkpatrick said despite growing demand and rising asking prices for new homes and Downtown condominiums, Memphis is still an under-priced market compared to other markets.

Factoring variables. Molony said various micro-economic issues were used in predicting the 2006 market. Aside from examining historic housing trends and demand, other factors include economic growth, inflation, income, unemployment, consumer confidence and, most notably, interest rates.

"We are seeing inventory levels picking up and we're projecting a slow but modest rise in mortgage interest rates," he said.

Crye-Leike Realtor Angie Kirkpatrick agreed.

"Interest rates have been creeping up each year, making it harder to sell," she said.

Other disruptions such as recessions, natural disasters and tax increases also result in slower home sales.

Molony said the market has been affected by minor changes that have escalated, noting that national media outlets have featured stories predicting the bursting or crashing of the housing market based on what he called "junk economics."

Though numbers will reflect a slight decrease, he said, the market should remain at peak levels.

Existing versus new. For 2006, Mitchell anticipates a 2 percent to 3 percent increase in home sales.

"In the Memphis and Shelby County area, new home sales are up 7 to 8 percent, and existing home sales were up 4 to 5 percent in terms of the increase above this time last year," he said.

Kirkpatrick noted that 2005 has been her best year.

She said the majority of her buyers have purchased existing homes, adding that buyers have higher expectations and are becoming more selective in the types of existing homes they are purchasing.

"Years ago, people didn't want to live in Midtown if they had children," she said. "They factored in schools. Now you see people buying homes in Midtown and also Downtown. They are looking for homes with updated kitchens and bathrooms and central heat and air.

"Condos are doing very, very well, as well as zero lots. Today, people want homes that don't require much maintenance. When you have both homeowners working, they don't have time."

Existing homes account for about 85 percent of the national market. Molony said new home construction activity is expected to slow next year, but remain at historically high levels.

Balancing the market. In 2004, the average list price for an existing home in Memphis was $136,005. In 2005, the list price to date has increased to $142,862.

Molony said the predicted sales slowdown on the national level in 2006 should improve housing inventory levels, slow down price increases and level the playing field among buyers and sellers.

"We're returning to a balanced market," he said. "We've had more buyers than sellers in the market. It's been favoring sellers, which is why home prices have been rising at historically high rates."

This imbalance in supply and demand is one factor behind sharp price increases nationwide, Molony added.

"Nationally, we are looking at about a 12.7 percent rise in prices this year," Molony said. "If we were in a normal market right now, you would be seeing home prices increase 4.5 to 5 percent."

Next year, Molony said, NAR predicts a 6.1 percent rise in home prices.