For the once-booming housing industry, 2006 could be the first year of discontent as housing markets from coast-to-coast begin to show deepening signs of wear.
In California, single-family home sales plummeted 17.6 percent in December, compared to the same month a year ago.
Single-family homes sales declined 3.5 percent last year in Massachusetts, and from December 2004 to December 2005 sales slipped 8.8 percent.
Total home sales were off 1.1 percent in Illinois in December 2005, compared to sales during December 2004. In the Chicago area, sales fell 2.7 percent.
In addition, new home sales in 2005 dropped 2.4 percent in the Northeast region and 2.9 percent in the Midwest region.
Nationwide new home construction in the month of December fell 8.9 percent, compared to the same month in 2004. Total existing home sales dropped 3.1 percent during December.
Ironically, even as sales fall, home prices in many regions continue to increase, albeit at a more sustainable moderate pace.
That could indicate buyers are unable to take advantage of moderating prices because interest rates are rising too fast. While rates are still historically low, they aren't low enough to offset historically high home prices.
Silicon Valley (Santa Clara County, CA) in Northern California is already showing the signs of a buyer's market. Homes for sale are languishing on the market, outnumbering buyers and selling for less than the asking price.
Initiated sales or accepted offers on Silicon Valley's single-family, detached homes slipped to 736 in December, the lowest they've been since the number plunged to 620 in December of 2000.
The problem in areas like Silicon Valley is that home prices shot up so high, even declining prices aren't attractive especially as interest rates rise.
The median price of single-family homes in closed sales in Silicon Valley slipped back to $734,975 in December, well off the area's record peak price of about $760,000 set earlier in 2005, but the December median remains surreal.
It is definitely a buyers market. People who are buying and selling right now are the short term investors and move-up buyers who basically use their equity positioning to obtain better housing and to engage in some profit taking. Buyers who've entered the market in recent years have been spoiled by low interest rates. Even after the recent rise in rates, financing costs remain historically low.
As some boom market conditions spread to more affordable markets, other conditions are throwing a wrench in the machinery that should be cranking out a buyers market across a wider swath of the nation.
The number of foreclosures nationwide was up 24.5 percent from the first quarter of 2005 to the fourth quarter, indicating the impact of higher home prices and higher mortgage rates.
Historically low mortgage rates, consistently escalating home prices and steady, strong employment has translated into relatively low levels of foreclosure properties -- particularly bank-owned properties. With interest rates rising and an apparent slowing of property valuations in most markets, there could be a material effect on the number of foreclosures in 2006.
Overall, U.S. foreclosure numbers climbed steadily over the course of the year, with more new foreclosures reported in every quarter. Nationwide, the number of foreclosures during the first quarter were 188,122. By the final quarter that number had risen to 234,278.
This trend appears to be moving the real estate foreclosure market back to its historic levels. In well-functioning markets, when prices rise, supply increases, and then prices stop rising and sometimes even fall.
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