Housing Market Cooling Off

According to Delaware Online "After an unprecedented four-year run for the home-building industry, new single-family home starts and sales could decline next year in Delaware by as much as 10 percent from 2005 levels, said Kent W. Colton, a senior scholar with the Joint Center for Housing Studies at Harvard University."

"But that's good news for home buyers, Colton told about 200 people at the annual Inaugural Luncheon on Monday of the Home Builders Association of Delaware."

"Return to a more normal market, where price appreciation is in line with inflation, could make housing more affordable, said Colton, who was the keynote speaker at the lunch held at the Dover Downs Hotel and Conference Center in Dover."

"People have been watching in despair as the market kept going up and up," Colton said."

"Rising interest rates are one factor that could cool down housing markets across the country. Some small speculative bubbles in certain markets could pop, including condominium markets in Florida, Las Vegas and California. Markets could see depreciation where investors bought properties with the intention of flipping them at a profit in a short period of time."

"Delaware's housing market could be in for a shock when MBNA Corp. is sold to Bank of America in early 2006. The banks have said they will cut 6,000 jobs nationally, and some analysts believe Delaware could lose more than 3,000 jobs. A loss of 4,000 jobs would represent about 1 percent of total employment in Delaware."

"Clearly, if you lose 1 percent of your total employment, it will have an impact. A lot depends on if they can find other jobs in Delaware," Colton said."

"One advantage for Delaware is that housing is more affordable than some nearby metropolitan markets."

"Affordability has become a major issue in recent years as home prices in certain markets, particularly on the East and West Coasts, have increased by double-digit percentages annually. In New Castle County, sellers began slapping a 20 percent increase on the price of the last home sold in a development -- and they got it in a matter of days, real estate agents said."

"As a result, the median price of a home in the Wilmington area rose to $183,000 in 2005, which means a buyer needs an annual income of $58,035 to afford the home. But an elementary school teacher earned just $48,039 in 2005, a police officer $46,489 and a retail salesperson $25,003. This creates an affordability gap, Colton said."

"The gap is even wider in Washington, D.C., where the median price of a house is $339,000. The annual income needed to buy that house is $107,507. However, the wages of elementary school teachers, police officers and retail salespersons are roughly the same as around Wilmington."

"As a result, many people would rather buy a house in Delaware and commute to jobs in Philadelphia and other metropolitan areas because housing here is so much cheaper, Colton said."

"Bringing housing more in line with inflation wouldn't be bad for anybody," he said."

Contact Maureen Milford at 324-2881 or mmilford@delawareonline.com.