Existing home sales jumped up 10% in September, but before you get too excited (like I did - I'm on the lookout for good housing news!) realize its bouncing off a July slump. This was caused by the expiration of the Obama $8,000 tax credit, which expired in May. The rate of home sales is 4.53 million - about what it was in 1998. This is despite record-low mortgage rates (4.35% for a fixed-rate, 30-year conventional loan) and low sales prices ($171,700 is the national average). So, what are homebuyers waiting for?
For one thing, more foreclosures, which could lead to even lower home prices. In September, foreclosures were 35% of home sales. This is down from December 2009, when foreclosures were nearly half of sales. The lower percentage could be because some banks have put a moratorium on foreclosures. Many homebuyers could be worried that the other shoe will drop if banks increase their foreclosure rate, sending home prices lower.
Another reason for a flat housing market is the 15 million unemployed, who probably won't be buying a house, no matter how low the price or how good the rate. Those who are trapped in an upside down mortgage aren't in the market for a new home, either, because they can't sell the old one. And let's not forget those who foreclosed, sold short or otherwise went bankrupt - they will all have to wait 3-10 years before they can get a new mortgage.
Despite all this, the housing market could recover. What would it take? Confidence on the part of investors. Right now, only 18% of homebuyers are investors. During the housing boom, they comprised 30% in some areas. Housing affordability is 60 percentage points higher than during the housing boom. At some point, some investors will decide the reward is worth the risk. Once that snowball starts rolling, rising home values will start liquidating foreclosures, which will increase confidence even more.
What It Means to You
We've entered a new era, where slow growth is the new norm. True, housing will be anemic for a while - maybe for a long while. But when confidence is restored, the cash that is sitting on the sidelines will rush in, and prices will go up again.
When will that be? Stay alert for increases in investor purchases in the NAR Housing Report. Follow what is happening with the shadow inventory of foreclosures, and the foreclosure moratorium. Look for housing prices to rise. These are the signals I'm watching - and reporting on.
- How Does Real Estate Affect the U.S. Economy?
- Definitions of Commonly Used Real Estate Terms
- A Primer on Interest Rates
If you are selling your home, here are some great tips from the About.com guide to Homes, Elizabeth Weintraub.
- Selling in a Falling Market
- Avoid Mistakes When Selling in a Slow Market
- When Is the Time Right to Reduce Price?