Housing Predicted To "Cool Off" In 2006

Housing in the Northwest has continued to experience a climb in prices this year as other parts of the nation have stalled, but some are starting to see some cracks in the foundation, and predict that next year the housing market will "cool, but not collapse."

Nationally and locally, the sizzling housing market has been one of the major props of the economic recovery. Homebuilding has turbocharged the Northwest construction industry: As of November, 19.5 percent of all new jobs created over the previous 12 months in Washington and Oregon were in construction, even though that sector accounts for just 6.2 percent of all jobs.

Housing activity has also aided the region's lumber industry and boosted retail and professional-service jobs (all those new homes have to be furnished and paid for, after all). Soaring values have allowed consumers to tap the equity in their homes to support their spending: Last year, funds from home equity hit $599.5 billion and accounted for nearly 7 percent of all disposable income, according to the Federal Reserve.

So what's in store for housing next year? Will growing pressure on consumers slow down appreciation? One economist actually admits this is likely:

But as mortgage rates creep higher and the Fed continues to tighten interest rates, nearly all observers expect the housing market to cool off next year. The big question is how fast it will do so.

"A year ago, I was saying 'No, we're not in a bubble — fundamentals are driving it,' " said William Conerly, a Portland-based economist. "Now, I think we are.

"So many people are buying houses for investment purposes, or they're buying a vacation house because their stocks haven't been doing very much and they see everyone else getting rich in real estate."

I think it will be interesting to see what happens. If you have any specific predictions for the Seattle area in 2006, feel free to share them here.

(Drew DeSilver, Seattle Times, 12.20.2005)