Homeowners bear brunt of industry slump

Sellers tired of waiting forced to take a hit by dropping prices
By MAUREEN MILFORD, The News Journal

Posted Saturday, January 26, 2008
Norman Harrison has been trying to sell his four-bedroom house in Brandywine Hundred since March. Now, he's "ready to let it go."

He's dropped the price by nearly $100,000.

"It hurts, yeah, but it hurts even more because I can't get rid of it. The market changed on me," said Harrison, 34, who bought the house in November 2006. "I'm not going to make what I wanted to make."

The housing slump hit Delaware homeowners hard in 2007 with sales of homes in New Castle and Kent counties tumbling by double digits from the previous year, according to year-end data provided by Prudential Fox & Roach Realtors. The Realtor does not track sales in Sussex County.

The median sales price declined in Kent County last year and experiencd only modest growth in New Castle County after years of rising prices.

Nationally in 2007, the median price for an existing home declined by 1.4 percent from 2006, the first drop since the Great Depression, according to Lawrence Yun, chief economist with the National Association of Realtors.

The situation has not improved so far this year, but at least the market doesn't appear to be declining further, Yun said. The association is predicting sales and prices will be flat in 2008.

"We think 2008 will be a stabilizing year," Yun said.

In Delaware, Kent County took the brunt of the downturn in 2007, with the number of homes sold last year dropping nearly 20 percent, according to Prudential Fox research, which measures sales of new and existing homes sold by real estate brokers. Sales of homes in New Castle County dropped 11 percent in 2007 from the previous year, according to Prudential Fox, the nation's fourth-largest residential real estate services company.

After years of ballooning prices, the rate of home appreciation is also beginning to drop in New Castle and Kent counties.

Katharine Pegg of Wilmington, who recently sold her town house near Rockford Park, estimates she could have gotten $90,000 to $100,000 more if she had sold her home in 2005. She had her house up for sale last summer for $490,000, but pulled it off the market because "nothing was happening."

When she relisted it recently, her real estate agent, Mary Beth Adelman, president and owner of Re/Max Associates in Wilmington, urged Pegg to cut the price by 8 percent. It sold in a matter of days for $440,000 and there were two offers.

"We still made money," Pegg said. "But it's just such a bad market."

Median sales prices in Kent County fell during 2007 by 3.1 percent to $220,000. That compares to a median sale price increase of 31.6 percent from 2004 to 2006.

While median prices in New Castle County rose 3.9 percent to $232,900 last year from 2006, the rate of appreciation was far off the 38.3 percent median sale price increase from 2004 to 2006.

"Prices are dropping. It's a fact. And they're not just dropping for a week or two," said Bert Green, a real estate broker with Re/Max Sunvest Realty in Brandywine Hundred.

The hardest-hit community in New Castle County was the Hockessin-Greenville-Centreville area, where the median sales prices declined 3 percent to $480,000. Communities south of the Chesapeake & Delaware Canal were flat with a median sales price of $300,000, while the median sales price in the Newark-Glasgow area rose 3 percent to $239,900.

"It seems to me pricing is much weaker since the summer," said Bill Luke, owner of Luke Real Estate in Wilmington.

'A great time to buy'

Basil and Jamie Krikelis of Brandywine Hundred, who are looking for a home within a commuting distance of downtown, have noticed the same.

"I think it's a great time to buy," said Basil Krikelis, a Wilmington lawyer. "We've been looking for two years and houses we couldn't afford then, we can now. There's definitely a lot of homes, a lot of options."

But the Krikelises also have to weigh a purchase against what they can get for their current house. "Our appraisal came in about $25,000 less than the year before," Basil Krikelis said.

To buyer Karin Kirkland, also of Brandywine Hundred, who is shopping for a house for her daughter to live in, prices haven't fallen substantially.

"I would say it's a buyers' market, but you're not getting foreclosure prices," Kirkland said.

That could explain why houses sat on the market longer in 2007. The length of time houses sat on the market in New Castle and Kent counties increased 38 percent to an average of 55 days.

"They don't feel it's bottomed out, so they're waiting," said Susan Taylor, vice president and manager of the Prudential Fox & Roach Greenville office.

Buyers also are aware that prices have been dropping in Florida, Arizona, Nevada and most of California, Yun said.

In Delaware, inventories also ballooned last year. In December, there was a nearly two-year supply of homes available in Kent County. In New Castle County, there was a 10-month supply. A healthy supply is less than three months, said Steve Storti, senior vice president of marketing with Prudential Fox.

"I've never seen it like this. And you can't find a single reason for why the entire market is in such a nose dive. Historically, it's always been interest rates. This time, you've got to create a laundry list," said Jack Corrozi, owner of Jack Corrozi Builders of Newport and a home builder since 1974.

Corrozi said he believes the market has yet to hit bottom.

"Unfortunately, there's been a panic out there," Corrozi said.

Rate cut offers hope

Actions taken this week in Washington should help, Yun said. In the first emergency rate change since 2001, the Federal Reserve earlier this week lowered the benchmark rate by 0.75 percentage points to 3.5 percent. It was the single biggest interest-rate cut in 23 years. An economic stimulus plan also is being considered in Washington.

"The interest rates are just so attractive, it's going to entice people into the market," Yun said.

Also, discussions are under way about raising the limit on loans that Fannie Mae and Freddie Mac can purchase in the secondary market beyond the present limit of $417,000 to more than $700,000. This would put more capital into the so-called jumbo market, Yun said.

"There will be higher sales activity in the second half of the year than in the first half," Yun said.

Even before the Fed action, a decline in interest rates from last year has helped the market, Adelman said. In mid-July, a 30-year mortgage stood at 6.73 percent, according to Freddie Mac's primary mortgage market survey. On Jan. 24, the rate for a 30-year fixed was 5.48 percent.

"The government has to do something because right now the real estate market is at a standstill," Adelman said.