June 06, 2011

When Will The Housing Market Stabilize?        

 When will the real estate housing market finally stabilize? The answer lies in two key areas: Consumer attitudes and restrictive lending requirements.

Consumer Attitudes

Traditionally when real estate prices have been this low, consumers have scooped up the bargains at a nice clip. This has not happened during this latest economic downturn. Instead, consumers are rethinking whether home ownership is a good deal or not. That’s unfortunate. We were spoiled by the 9.2 percent annual rate of return experienced from 2001 to 2006. These stats were reported in a Report on the Economy published by the Bush administration in Feb. 2006.

Now that the market has adjusted and housing prices are making for some amazing bargains, consumers should be confident that home ownership is still a sound investment. Traditionally, real estate doesn’t have the erratic spikes found in the stock market, and most investment counselors agree that having real estate as part of your portfolio is important. In fact, a study by Jack Francis, an economics professor at Baruch College in New York City, and Roger Ibbotson of Yale University that compared the annual returns of real estate from 1978 to 2004 shows that housing delivered an annualized return of 8.6 percent during that time period.

Restrictive Lending Requirements

Ron Phipps, president of the National Association of Realtors (NAR) places the blame for the continued slow-paced home sales squarely on the backs of lenders, noting that today’s lending requirements are extremely restrictive.

“…banks needn’t be so stingy as to only lend to those with the highest credit scores,” he noted in a Realtor.org release.

The NAR also points out the problems with low-value appraisals are hurting home sales with a survey showing that 11 percent of Realtors ® reported a home sales contract was cancelled in April from an appraisal being lower than the agreed upon price between the buyer and seller.

Lawrence Yun, the chief economist for NAR, notes that existing home sales are expected to trend up through next year, however, “unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations.”

My personal experience has been this: Yes, lenders are very strict so those buyers who have cash are king and can get the absolutely best deals on real estate. Faced with harsh credit standards, consumers are getting creative as I’ve seen family members pool their moneys together to purchase a property and this is happening more frequently than in the past.

One last point to note: When you begin reading that housing values are going up, you have just missed out on the bottom of the market, which everyone wants to know these days. When the media begins reporting that prices are increasing, the bottom has already occurred. Those of us in the trenches see what’s happening and respond accordingly. That’s why you need to contact a Realtor ® about the housing prices in a particular area—specialized knowledge is key to getting the best price for a home. Don’t wait to hear it on a TV news program.

Real Estate Radio