The negatives of the current housing market are getting more than their fair share of play in the media: an exceptionally large number of homes available, falling prices, tougher financing rules, reluctant buyers and too many foreclosures. Everyone has been inundated by the bad news. At this point, we just want to know when it will all end. You will be dealing with uncertainty either way, but this is the way to go in a slow market. Unless you have very specific needs or desires, the large inventory of homes available in most areas should provide sufficient choices for you to choose happily among when the time comes (and with greater bargaining power). Short-term rental properties are usually available to help smooth out any timing issues and sales are restored to health nationwide and are ready to resume their historic, steady increase.
Some, including the National Association of Realtors, believe we will see improvement in the second half of this year. More pessimistic predictions are that we won’t see a turnaround until late 2009 or even 2010. Whatever the ultimate duration of the slowdown, we shouldn’t overlook that there are pockets of strength and a number of favorable developments. To start, there are many areas that have escaped the pain of price declines entirely. Sales levels may be modest and prices flat or only slightly rising, but steady and orderly home sales will be their norm. The National Association of Realtors reported that, in the 1st quarter of 2008, one-third (48) of 149 metro areas showed rising home prices.
Make no mistake, there are plenty of areas where sales and price weakness prevail (the other two-thirds of the country), and in some it is likely to do so for a while. Especially where there are foreclosures weighing on the market, prices will be dampened and voluntary sellers will have tough competition. While we do probably have more unpleasantness to stomach in many areas before their markets are ready to start showing general improvement, there are signs that suggest some portions of even struggling regions are on the way toward recovery. A turnaround has to start somewhere and it makes sense that the best homes, in the most stable communities, where there are strong local economies will start to rebound first. We are starting to see this happen in a few places.
In fact, the spotty nature of current housing market conditions needs to be understood by potential homebuyers and sellers. “It’s more important than ever to examine what’s happening with home prices at the city and neighborhood level,” explains NAR President Richard Gaylord. “The old real estate mantra of ‘location, location, location’ is perhaps more relevant today than ever before.”
Consumers should check with their Realtor for “expertise on what’s going on in their own area because conditions can vary considerably from one neighborhood to the next,” Gaylord suggests. Some intrepid buyers have recognized this and are seizing the chance to get into prime communities where homes have been in short supply and high demand in recent years. Modest price declines are offering a rare opportunity to gain entry into highly sought-after neighborhoods at a discount. As part of the bottoming process, we now sometimes seeing multiple contract offers again for choice homes that are priced attractively. If you look only at the numbers, though, you might justifiably be discouraged.
Is Home Price Data telling the truth? According to the NAR’s latest figures, the median existing single family home price in the 1st quarter of 2008 was $196,300, down 7.7% from the $212,600 median in 2007’s first quarter. But are those figures really representative of what is going on nationally with respect to home prices? The NAR suspects not and we find their argument persuasive. First off, NAR says, the difficulty in getting affordable jumbo loans (a problem that has eased a good bit with the introduction of the higher loan limits for FHA, Fannie Mae and Freddie Mac in April) led to a proportionately greater slowdown in the market for higher-priced homes.
Coupled with a large number of foreclosures, which may be inordinately depressing selling price figures, fewer sales of more expensive homes probably helped skew the median sales price results lower during the 1st quarter. In the more costly housing markets, the downward pressure on home price figures was probably accentuated. As the jumbo mortgage market is restored, median home price numbers could rise, as a more normal mix of homes being purchased resumes.
We wonder if another factor might not be playing a part. Many housing experts have anticipated a move away from the mega-mansions toward smaller, more energy-efficient homes. With jumbo mortgages more costly and difficult to qualify for, some homebuyers may finally be making the decision to choose a smaller home than they might have a year or so ago. That, too, would factor into lower median home prices.
So, we’re hoping the numbers may not prove to be quite as dire as they might seem right now outside of those very well-documented places where the housing market and home prices are in a shambles, such as Las Vegas and many parts of California and Florida.
Notes for Homebuyers
Homebuyers have been holding the cards in most markets this spring. But, as with most buyer’s markets, there are not nearly enough of them.
Why the reluctance? A difficult mortgage environment. The mortgage market has been very volatile this year and that has made it difficult to get pre-approved for a loan that you could be certain would still be around when you had found your home of choice. And even tougher if you needed a jumbo loan. Mortgage shoppers early in the year often found that the mortgage program that looked great one day was substantially different a day or two later, usually more costly.
We suspect lenders are moving out of panic mode and mortgage programs are regaining stability. They may cost a little more in rates and fees than in the past, but that is the new reality and won’t be changing soon. Even if some volatility does continue, buyers should get a pre-approval, because it gives you time to discover and work out any credit issues in order to qualify for the best available programs with the lowest fees.
Fear that their current home won’t sell. If you are worried about selling your present home, sell first and then look for your new home. You will be dealing with uncertainty either way, but this is the way to go in a slow market. Unless you have very specific needs or desires, the large inventory of homes available in most areas should provide sufficient choices for you to choose happily among when the time comes (and with greater bargaining power). Short-term rental properties are usually available to help smooth out any timing issues.
Fear that home values continue to fall.
It is possible that some areas may experience further price declines, but, since most homebuyers expect to stay for seven to ten years, additional shortterm declines in value will probably be long-since erased over that time. And what of the possibility of higher mortgage rates? The Federal Reserve probably has ended its round of rate cuts and if the cuts are successful, then the economy will pick up strength and rates will rise. Assume that a home currently priced at $300,000 declines 5% over six months, to $285,000, but interest rates during that period rise from 6% to 7%. A buyer who has $60,000 for a downpayment would pay $1,432 per month now on a $240,000 loan, but $1,488 later on a $225,000 loan, eating up about $5,000 in equity savings. If prices do not fall further and rates rise, a $240,000 loan at 7% will cost $1,587 per month with no equity benefit. © 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Finance®
