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U.S. Real Estate Market Dodges a Crash Landing


This is DAY TO DAY. I'm Madeleine Brand.



And I'm Noah Adams.

Housing prices in the U.S. fell this year for the first time in more than three decades. That's one indication of the breadth of the housing slump. And here's another - the number of houses and condos sitting unsold on the market has doubled, and even tripled in many areas.

NPR's Chris Arnold has a report.

CHRIS ARNOLD: On the sidewalk outside city hall in Boston, Shandra Kassernini(ph) is having a smoke break. And he does contract computer work for the city, and for what they pay him, he says, it's been tough to find a house or condo to buy even with prices coming down some.

Mr. SHANDRA KASSERNINI: But I would say like, you know, probably like in 5 to 10 percent a little bit, I think yeah, if they came down. It will still go down a little bit before I think it stabilizes.


ARNOLD: A lot of would-be homebuyers are thinking the same thing, that's one reason sales are down. That keeps more houses on the market, the so-called housing inventory, which also makes buyers feel like there are plenty of homes to look at and no rush to buy one. So the question is when does that cycle reverse itself?

Mr. ROBERT TOLL (Toll Brothers, Inc.): How do we get out of this? By working our way through the inventory.

ARNOLD: Robert Toll is the chairman and CEO of Toll Brothers, Inc., one of the nation's biggest homebuilders. The number of new homes being built has fallen more than 30 percent from last year's peak. And Toll says once the supply of homes on the market starts to fall, he thinks the stage is set for a recovery because the underlying economy is still very strong.

Mr. TOLL: In my 40 years in business, I have never seen a housing downturn, let alone as sharp as this one has proven to be, at the same time that you have very low unemployment, decent job creation, the stock market reaching new highs and interest rates near the bottom.

ARNOLD: Economists agree that there is something different about this latest surge and decline in the housing market. One difference is that more people were buying up houses and condos as speculators trying to make some quick money. Another difference is the flood of first time homebuyers with little or no savings, and even shaky credit, lenders were very eager to offer them so-called subprime loans.

Economist William Wheaton is a director of MIT's Center for Real Estate.

Mr. WILLIAM WHEATON (MIT's Center for Real Estate): At any time, we have five million renters moving over to owning, and the home ownership, the rate going from 65 to 70 percent. That puts a huge pressure on house prices.

ARNOLD: But Wheaton thinks that well is pretty dry. And he takes a more negative view of the underlying fundamentals than Robert Toll does. Wheaton says interest rates, unemployment, and the stock market may all be good, but he says wages have been stagnant, the population isn't growing that fast so he doesn't see a big surge in demand anytime soon.

Mr. WHEATON: Most economists think we're in for a fairly significant period of stagnating, gradually falling house prices. We just built a lot of houses in the last five years, more than we need. A lot of them have been second homes. Most economists now are not predicting a quick rebound.

ARNOLD: Wheaton says the downturn will be worse in areas in the south and west of the country, where some experts expect prices to keep declining well into 2008. There will be variation from city to city. Many economists say prices in the once-booming markets may fall 15 percent or so peak to trough, but not off a cliff.

But any drop is bad news for all those people with bad credit who've taken out subprime mortgages. Twelve percent of those homeowners are now late on their payments. Teaser rates are adjusting upwards by hundreds of dollars a month. Mark Zandi is chief economist with Moody's

Mr. MARK ZANDI (Moody's I suspect the turnover of these households will end up turning back the keys to the lender and go back to renting. So we will see a decline in homeownership over the course of the year.

ARNOLD: With house prices down, banks are now tightening their credit standards. And so even though interest rates have been falling again lately, Zandi says the people in the most trouble with the worst credit often can't refinance into another loan.

Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright NPR.