Year 2007 presents a year of transition, one that will extend the market adjustment that was 2006. The top of the market occurred in May 2005 as the monthly rate of sales activity hit 3500. Mortgage rate concerns, and the rapid appreciation of prices, caused the froth of the real estate market to slow the whole conflagration. As the market cooled, sellers began the painstaking process of adjusting their expectations. The process is well into the 18 month, as price adjustments in illiquid assets can attest.
The adjustment in real estate prices was a function of the credit markets, favorable underwriting standards allowed buyers to accept risks way beyond their realized capacity, many of which signed up for adjustable rate loans, which did adjust, causing monthly payments to squeeze household budgets.
Now that interest rates have come down, REA would expect prices to firm, and the seasonal mass of buyers would be out in full force, SPRING 2007. At this point, in the end of March, the rate of monthly sales has only recovered marginally, even though data show that median prices per bedroom, a standard home valuation variable, shows signs of stability if not increase.
So....we would expect a much better year than 2006. But, lending institutions under considerable review for so called predatory lending, promptly restricted their standards, in some anecdotal cases raising minimum scores from 620, to 680 to 720...by some accounts. Given this institutional constraint, REA expects the housing recovery, first buoyed by lower interest rates, to be stymied by increased rigidity in lending standards. Those "creative" adjustable rate products, that enabled so many to get into a house, will now limit the number of buyers in the market.
Its hard to estimate the level of impact that an increase in underwriting scores can bring. However, REA reports that the number of listings offered equals around 13,000 and the number of short sales, or essentially buyers in trouble equals 1100 or so. This suggests that around 7 percent of the buyers could be impacted by the changes in credit standards. If we assume a normal sales rate of 2000 homes per month....currently its 1500 or so....only 150 or so purchases could be impacted.
Considering the rate of sales one could estimate that the impact of the sub prime situation could be on the order of 500 homes per month.
All this means that sellers must continue to price homes aggressively, in addition to marketing the properties. Most of the sub prime impacted houses exists in $200-$300 price point, and many can be described as being located in investor areas. Regardless, this means than much of the price adjustment will be in the entry markets, which suggests that the market is wide open for those home buyers entering the market. Admittedly, credit standards may be more rigorous than before, but this constraint with be mitigated by lower sales prices.
The length of the adjustment this time could easily include much of the season. Fed watchers do not expect any changes in monetary policy that could bring rates down. But, remember all markets turn, and the current period is only a market transition to another time. If you must sell, or want to buy knowledge of the market conditions will make the process more manageable. Do not forget to contact us as GBC REALTORS if you need some help.
So trends in 2007? Given the likelihood of continued pushes in the state government hiring, likely stability in mortgage rates and a slowdown in population growth –much of population growth is driven my migration which is encouraged by job opportunities- home buyers and sellers can expect a pause in the rate of decrease in home prices and an opportune time to reposition. Much will depend upon the reality of the co-called "credit crunch".
The housing crash did not occur, as forecast by the doomsayers. ”. Regional employment growth remains positive and no significant reduction in home values or housing bubble explosion or crash is expected as was experienced during 1992-1995, however, aggressive listing inventory will increase days required to move a property as the rate of monthly sales struggles.
Aggressive pricing in good neighborhoods continues to move product....real estate markets in the final analysis are local. Contact your agent and use your instincts in determining market strategy and pricing, forgetting to wild seller expectations of 2004-2005. Gold rush is over for the time being..... .
