High-Priced Home Glut Softens Market

Traditionally, the nation’s housing market takes an early winter nap from Thanksgiving Day through New Year’s Day. That’s why you will not know, for certain, the real significance of the current downturn of sales of new and existing homes.

Meanwhile, there’s no mistaking that U.S. home sales, even in this economically dynamic national capital area, have taken a mild dive. New-home sales have been declining for several months, with a 16% downturn in October compared to that month in 1987. Only the areas with available low-priced houses (relatively, that is) have maintained their normal sales paces.

A survey of area home builders and sellers indicated considerable support for recent reports that sales of million-dollar mansions have slowed sharply. Builders put up too many houses for the seven-digit-dollar market. Also, owners of homes that would ordinarily bring $500,000 to $750,000 found that they had overpriced their “family castles” by putting million-dollar tags on them.

Summary: There are just too many ultra-high-priced homes on the market, and most of them are obviously overpriced, even for an inflationary market.

Realtor Marie Connell recently took her home off the market. “Very simply, we had no prospective buyers . . . and I thought we had the house, recently refurbished, priced realistically at $199,000. So, we’ll hold it until spring when the market is likely to be better. In the past 30 years, I’ve seen a lot of ups and downs,” she said, “and I know that the ups always more than compensate for the downs.”

Charles Browning, publisher of New Homes Guide, put it this way: “There’s some softness in all housing markets, but the market for any homes, be they townhouses or small singles, is still strong if the price is under $150,000, and even stronger if you can find something under $100,000.”

New-home starts are expected to decline at least 5% to 7% this year after a 10% downturn in 1988. But that’s not so gloomy because housing starts and all home sales were exceptionally high all over the nation in 1985-87--and, generally, good since 1983.

The National Assn. of Realtors has predicted a decline of 5% in the number of house resales this year. NAR expects the median price for existing single-family houses to climb 5% to the $94,000 level. What isn’t said is that sales will remain strong in the $75,000-$150,000 market and soften in the range above $400,000 in high-price areas and above $200,000 in relatively low-price areas.

By way of contrast, right now you can buy a large, well-maintained older house on a 1-acre lot in a prestige area of Williamsport, Pa., for less than $225,000. But you’d have to pay more than double that amount for a comparable house (on a smaller lot) in Washington or Los Angeles.

Housing doomsayers get no support from economist James W. Christian, who contends that reports of a “housing demise” have been “greatly exaggerated.” The U.S. League of Savings Institutions official agrees that housing activity will be a bit weaker in 1989, but he says the availability of adjustable-rate mortgages shifts the burden of the buying decision to home prices and employment prospects. In the next few years, he thinks it “unlikely” that levels of home construction will rise, however.

Most housing professionals agree also that the bulk of pent-up demand for housing has been satisfied. “Pent-up” buyers are those who wait for more affordable mortgage rates--or those who decide not to buy simply because “prices are out of sight.” The latter category has both increased and also declined. Why? Well, more people (especially those looking for houses) perceive housing prices as being outrageously high. On the other hand, their number has decreased, simply because many young, upwardly mobile Americans have come to regard high housing prices as normal.