Bubble, Bubble -- Then Trouble

Business Week reports on the prick in the bubble in Loudoun County, Va. :

Bob Semmens, a 60-year-old retired pressman, has heard that sound. After he offered up his 3,000-square-foot colonial, with three acres and a swimming pool, in early July for $759,000, he sat back to wait for the frenzied offers. A year before, houses had remained on the market for just 20 days and were snapped up in bidding wars. But "very few people were even coming out to look," Semmens recalls. After four months, he was about to take the house off the market until next spring. But then he struck a deal -- for $620,000, an 18% price cut. Semmens rues his bad timing: "Just at the time I was getting the house on the market, everything really started to slow down."

By October, agents had 2,908 existing Loudoun houses on the market, an increase of 127% over a year earlier. The average time on the market had climbed 62%, to 42 days, since the fall of '04. And in just two months, from August to October, the median sales price for houses dropped from $506,100 to $480,000. In kitchens and coffee shops from Purcellville to Leesburg, anxious homeowners swap stories about a market rapidly going soft: The real estate agent who gets 10 to 15 e-mails a day from developers now offering price cuts of $10,000 or more to move new houses. The sign installer who's putting up three "For Sale" signs for every two that he takes down.

What's happening in Loudoun is a rapid shift in psychology -- a classic sign of a market turn. The buoyant optimism that fueled speculation and expectations of ever-rising prices is now succumbing to the fear of being left standing when the music stops. Real estate, the hottest play of the century in Loudoun, is rapidly cooling.

You mean real estate doesn't always go up? You'll want to read the whole thing.