Contrary to the repeated headlines we have read over the past two months, the real estate market isn't dead or dying. Many of our sellers who are currently listed have been pleasantly surprised at the amount of buyer and offer activity they have seen.
Granted, no one will confuse this market with 2004. But there is reason for optimism, many reasons in fact:
Buyer and purchase agreement activity is increasing in many markets.
Mortgage financing is readily available and interest rates are very attractive.
In some market pockets, there aren't many non-foreclosure properties available--well cared for properties are in short supply.
While it is tougher to sell, move up buyers (people who need to sell their current home and then buy a bigger home) can find tremendous opportunities on the buying side.
Waiting for the market to improve when you know you need to sell is not a good strategy for most property sellers.
Let's go over these points in more detail:
Buyer and purchase agreement activity is increasing in many markets. There are a good number of markets where the number of purchase agreements accepted in increasing over the same month in 2007. The opportunity for buyers to purchase homes at lower prices and the fact that real estate is still a good long term investment, as well as attractive interest rates.
Mortgage financing is readily available and interest rates are very attractive. While it is mortgage companies and investors in mortgages that created and are greatly suffering due to the current financial situation, mortgages are still available. It is somewhat ironic that there was never a time during any day of this crisis where mortgages weren't available. Interest rates jumped around a little, but now appear to have settled down.
In some market pockets, there aren't many non-foreclosure properties available--well cared for properties are in short supply. One midwestern metro area's statistics showed that 60% of the listings on the market in the starter home price range were "lender mediated" either foreclosures or short sales. Most home buyers aren't interested in those properties, because the buying process is filled with uncertainty and risk. These properties are also generally in rough shape. Lender-mediated home buyers must have a tremendous amount of flexibility, as the transactions require lots of waiting (often weeks just to hear if the buyer's offer is accepted). The nature of those transactions also require the buyer to be ready for the transaction to be called off at the last minute before closing. You don''t really know you can buy the property until you are walking out of closing with the keys. Buyers who don''t have flexibility must stay away from the lender mediated buying process, which favors sellers who are not in short sale or foreclosure. It is nearly impossible to see this difference between normal and lender mediated sellers in the market statistics we see in the news.
Waiting for the market to improve when you know you need to sell is not a good strategy for most property sellers. For most sellers, the holding cost of owning property makes attempts to "time the market" a poor strategy. If the current average market time is 9 months, and a seller needs to sell, it doesn't make sense to wait 3 months to list even if the market will improve. If it is November and the average time is 9 months, one could expect it would be next August if you have the average time. Say the seller decides to wait until February, and the market improves substantially 17% to an average market time of 7.5 months (yes, a 17% improvement is overly optimistic). Now their expected sale date would be late September-two more months of mortgage payments, property taxes, insurance, utilities, association fees, etc. Just like with stocks, attempting to time the market is usually a sure way to lose out.
Keep in mind, there is no national real estate market. Residential real estate markets are inherently local. Many of the headlines you see about national statistics are about as useful as seeing a national weather forecast: "Today the average temperature in the US of A is 40 degrees." That doesn't tell you anything, you need to know that Chicago is zero degrees, Cincinnati is 40 degrees, and Orlando is 80 degrees. Most news reports about real estate do a very poor job of distinguishing between local and national statistics, which is at the heart of how relevant the story is.
Keep in mind headlines about new homes and construction will continue to be bad. There are still too many builders out there, and so many of them over built in the last 5 years. It will take many years to for buyers to purchase all that oversupply of new homes, condos, and townhomes. So if you are a home builder, don''t plan any new developments until 2010 at the earliest, and maybe later than that in some areas.
I doubt we will ever get back to easy no money down mortgages being the rule and not the exception. So if you want to be a home buyer, save your money.
I doubt and hope we will also never go back to giving mortgages to people with bad credit, recent bankruptcies and foreclosures. If you want to be a home buyer, pay your bills on time and avoid other debt.
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