Builders began construction on fewer single-family houses in June, a possible sign that years of strong growth in the national housing market may finally be leveling off.
Overall, new housing starts, which include apartment buildings and condominiums, were flat.
The new housing figures, released yesterday by the Commerce Department, bolster the view of economists who have predicted a gradual slowdown in housing starts and an easing of price increases as mortgage rates tick up with the prospect of passing the 6 percent mark by next year.
Washington area markets have been among those posting strong gains, with prices rising across the region around 16 percent annually over the past three years, said Brenda B. Shipplett, president and chief operating officer of Long & Foster Cos., a closely held brokerage and real estate services company based in Fairfax.
Shipplett said her company has seen some moderating in what was an overheated market. These days, properties can linger as long as a week, compared with selling on the first day on the market a year ago, with fewer multiple offers and bidding wars, she said.
"We like a saner market place," she said. "We're not happy when 10 people bid, and nine lose out."
Nationally, coastal markets, especially in Florida, have seen prices escalate far faster than those in the heartland and remain most vulnerable to a significant pullback in prices, possibly in the 10 percent range, some economists say.
"We see a slowing in home-price appreciation," said Celia Chen, director of housing economics for Economy.com, a West Chester, Pa., research firm. "But some markets could see a significant decline."
Homeowners in recent years have watched with satisfaction as prices nationally rose at a double-digit pace, while some markets, including Phoenix, Southern California and parts of Florida, experienced annual price increases of 30 percent or more.
Low yields on stocks and bonds have fueled the growth as investors poured money into real estate of all kinds -- single-family houses, apartment buildings, offices and shopping malls, and even real-estate stocks, which posted average returns of more than 30 percent per year in 2003 and 2004 before leveling off this year, according to the National Association of Real Estate Investment Trusts, a Washington-based trade group.
Real-estate price gains have been credited with everything from fueling strong consumer spending, as homeowners have taken equity out of the homes in a refinancing boom, to creating a new class of real-estate speculators, to spawning a universal topic of middle-class dinner-party conversation.
"People have been talking, talking, talking about real estate as a way of getting rich," said William Cheney, chief economist at John Hancock Financial Services Inc., Boston, who calls the chatter a worrisome sign.
Nationally, housing starts stood at a seasonally adjusted annualized rate of 2.004 million in June, the same as in May, while single-family starts stood at 1.667 million, down from 1.735 million in May, according to the Commerce Department.
"We seem to be hanging in at high levels," Cheney said.
Historically, the nation produces about 1.5 million new housing units a year and reaches the 2 million-home mark only during periods of high demand -- as when baby boomers began moving into their own homes in the 1970s, and then again when they began to purchase larger units in the mid-1980s, Cheney said.
The current building boom has been fueled by low interest rates, which have pushed down the cost of owning a home and advanced home ownership rates to record levels, around 69.1 percent, up from the previous high of 68.6 percent in 2004. Home ownership rates have been breaking records over the past five years.
The moderation in home-building last month was uneven, with the South, which includes the Washington area, showing surprising strength, adding 1.02 million new units in June, an 11.4 percent surge over the previous month and twice as many as the next-leading region, the West, which had 522,000 units, a decline of 10.4 percent from May. The Midwest added 360,000, down 12.1 percent, and the Northeast another 124,000, flat from the previous month. The Commerce Department report didn't break out individual markets, but economists said such markets as Atlanta, Orlando and other Florida markets led the way.
"The Confederacy has risen again," said David A. Wyss, an economist with Standard & Poor's.
Most economists forecast steadily declining housing starts into next year if mortgage rates edge higher. Wyss said he expected housing starts to dip to about 1.8 million by year-end as 30-year mortgage rates climb to about 6.3 percent, from current levels of around 5.7 percent.
Chen forecasts new housing starts to sink to 1.65 million by the end of next year, with prices tapering off as mortgage rates rise.
However, one sign that the building boom may still have room to run: The number of new building permits authorized rose at a rate of 2.4 percent, to 2.111 million, from 2.062 million. The permits figure is seen as a leading, though less reliable, indicator of future housing construction.
"Permits remain in the stratosphere," Cheney said.