2005 National Association of Realtors® Profile

According to the 2005 National Association of Realtors® Profile Survey of Home Buyers and Sellers…

Are open houses useful for sellers? Well, although 51 percent of home buyers said that they used open houses as a source of information in the home-buying process, and 42 percent said they were useful sources of information, not even 1 percent named an open house as the source of information from which they first learned about the home that they ultimately purchased. Moral? An open house may be a useful way for buyers to gain information about the market place, and they may be wonderful ways for agents to meet people who are looking for homes, but they are of practically no value in attracting home buyers for the home itself.

Real estate: busts don’t follow booms

How vulnerable are the boom markets?

The FDIC defines boom rather conservatively, as a 30 percent or greater rise in median home prices, adjusted for inflation, during a three-year period.

But many U.S. housing markets have had far greater annual appreciation than 10 percent.

Las Vegas was up more than 50 percent in 2004 and several California and Florida regions gained 30 percent or more. Still, those sizzling markets represent a small percentage of the country. Overall, there was an 11 percent increase last year in median home prices.

That did, however, far surpass increases in personal income (5.8 percent) and rental prices (2.7 percent). In the past, periods when housing grew much faster than those metrics were usually followed by a period of stagnation.

The FDIC report points out that busts that have followed booms have tended to be rather mild, more stagnation that catastrophe. No housing bust that followed a boom during the past 25 years exceeded a 20 percent average price drop.

Furthermore, the correlation between boom and bust seems weak. The FDIC reports, “In just 9 of 54 unique boom episodes prior to 1998…did a bust subsequently occur within a five-year window.”

As a matter of fact, FDIC data revealed that more housing price busts (12) occurred in markets that hadn’t gone through booms than in ones that did. They are more likely to result from collapses in local economic conditions than from mere run-ups in prices.

The most severe housing price drops in recent years occurred during the late 1980s in places that hadn’t boomed — Casper Wyoming, Lafayette Louisiana, Midland Texas, and Anchorage Alaska, so-called oil-patch cities, during down years in the petroleum industry.

So even if housing prices are not booming in your region, it doesn’t mean they won’t drop. And if your region is booming, you don’t necessarily have to brace for a collapse.

The Palm Springs Real Estate market has shifted very quickly, even in the last year

But that’s based on history. The wild card this time around is the possibility that those new mortgage lending practices that have led to more highly leveraged home buying have introduced a fundamental change to the housing market.

If interest rates climb precipitously, it could leave many homeowners with far larger monthly mortgage payments than they have now. The danger, according to Brown, is not simply that they would lose some of their investment, it’s that they could lose their homes.