There have been few years that have started out with as many mixed signals at this year. The MLS numbers published in the papers show some real growth in terms of homes sales yet our collective pocket books (Sellers and Realtors) don’t seem to be feeling the good news. I was skeptical about the MLS numbers and in fact held off on sending out any market data until we could detect some consistent pattern in the market. It appears the drop in March was somewhat weather related, with many “March” buyers finally coming out in April. In short, the good news is the combination of bargain prices and great rates are beginning to both draw new buyers and cause old buyers to act. However, there has been a pretty strong pricing “bribe” to bring them out. Prices will continue to fall 8-12% this year from last year (it will feel like 15 to 20% when based off the asking price). These bargains are drawing down the listing inventory, so each month we are moving a step closer to a balanced market. There is still a wave of foreclosures yet to hit the market. The foreclosure and tax relief bills in process at both the state and federal level will help smooth out the remaining foreclosure lump. If they are delayed, the pricing pressure from short sales and foreclosures will continue into the third quarter of 2009.
Financially stressed sales (either foreclosure or short sales) still make up 50 to 70% of pending listing sold, indicating that buyers are drawn to the perceived potential bargains they represent. Sellers who are not in that category still need to adjust to compete or their piece of the buyer pie will shrink in half.
As we have said before, this does not mean a buyer should wait until next year to buy. It is unlikely that interest rates will remain this low. Further cuts by the Fed in short term rates will continue to cause long term rates to rise. Any delay in trying to buy at the bottom will be lost in higher interest rates.
The Rule of Thumb is a 1% increase in interest rates wipes out any gain from a 10% drop in home values. It is more likely rates will rise by more than 1% over the next 12 months than values will fall by more than 10% in most of our markets. The rules have not changed for this year or next. Now is the time to buy, what you lose on the sale of one home you will gain on the purchase of another. Vacation homes are at all time bargain prices as well.
Many Sellers are not in a position to make a move, regardless of potential bargains. They should, with your help, take a hard look at their housing needs over the next 24 months to determine if selling is in their best interest. As much as we love to help them sell their homes, our best advice for some is to wait, if they can afford to do so.
