Spring is here, sort of, market activity increases!
While you might not know that we’re already deep into spring time here in the Treasure Valley based on the weather, the calender doesn’t lie and neither does the bump we’re seeing in the market. Historically, the Treasure Valley real estate market is very cyclical with slower times in the late fall and winter months and a vigorous revitalization in the spring and summer which peaks in late July.
This year is no different, in fact early spring sales got a terrific shot in the arm with home buyers seeing the expiration of their tax credit incentives drawing to a close. The vast majority of home buyers taking advantage of this opportunity were focused on the $110,000 to $180,000 price points and they came out in droves before the end of April (2010) at which time they had to have an executed contract on their property of choice to qualify.
Some agents and analysts lament this activity and appear to anticipate a dramatic drop in activity post tax credit. While this opportunity for buyers did accelerate many first time buyer time lines I do not anticipate closings to plummet. Buyers late to the party will be closing throughout May and June. Individuals and families that are buying up or buying down were less likely to be affected by the tax credit and are more likely to be focused executing their move later this summer. While activity in the entry level housing market (sub $200,000) has probably peaked, sales will continue and likely we’ll see homes at higher price points coming under contract during the summer.
The issue that continues to plague this and every market is the amount of distressed property that must be absorbed. The number of distressed homes for sale, short sales or REO/Bank Owned, outnumber traditional resale and have for months. This continues to put downward pressure on prices. Prices have stabilized considerably but the “fire sale” pricing of short sale and REO homes will likely depress prices for the foreseeable future, at least the next several years.
Why will things continue for the next several years you may be asking… well, the reason is simple. Before the sweeping mortgage reforms, most home buyers opted for 3, 5, or 7 year ARMs meaning that in X number of years the fixed mortgage APR becomes adjustable. Since most homes purchased in the last 5+ years are now underwater these homes will likely wind up as future bank owned or short sale listings. Thankfully, interest rates continue to be at all time lows, realistically there is no way they will stay here for ever. I’m the first to admit that I am no financial guru, but to see rates at 6% or higher in the next 12 months doesn’t seem at all unrealistic. 6% is still a fantastic interest rate, but when buyers become used to 5% there will be a crunch when rates rise.
It will all work itself out. Bottom line is that prices are down, interest rates are fantastic, and the amount of home that your money will buy is downright incredible. While many sellers will not like what the market will support in the sale of their home, if they are buying up the returns (in the form of savings) can far outweigh them.
