Summertime….Will the Home Buying be Easy?
By Lawrence Yun, Chief Economist, NAR Research
It was a good kick-off for the summer season. The pending home sales index figure that was released earlier this month marked a third straight month of rising pending sales. That is certainly welcome and encouraging news. It is fairly obvious that first-time buyers are responding to the incentives of rock-bottom mortgage rates and the first-time buyer tax credit to pick up relatively cheaply priced homes. Indeed, recent figures suggest about 45 percent of buyers have been first-timers – a higher proportion than the typical 35 to 40 percent during more normal years.
A high proportion of the transacted homes are distressed, either in foreclosure or requiring a lender approval short-sale, with deep discounted prices. By the fourth quarter, existing-home sales are projected to be about 15 percent higher compared to the comparable period the year before if all goes as planned. Some of the recent first-time buyer transactions will help existing homeowners to make the sale and then buy the next home. Other first-time buyers purchasing vacant home still are helping in terms of absorbing inventory.
Home sales in the hard-hit California market have recently reached levels that are nearly twice as high compared to when they were in the trough. Evidently the California housing market is experiencing a tipping-point phenomenon: potential buyers suddenly wanting to enter the market all at once. People have waited and waited for the best time to enter the market. Why buy now if prices will be lower later? After having tumbled from unsustainable heights, home prices there are highly attractive and within budget for many fence-sitters. So when some buyers started to enter the market, other bystanders just couldn’t let others take advantage of the great buying opportunity. Many are now fighting to jump into the market. Multiple-bidding on lower-priced homes are said to be common in California. People who “lose out” during a bidding war don’t simply go home and wipe away their tears — they come back with almost vengeance-like determination and hope their next bid will be the highest. What does that mean for home prices? Though the year-over-year price measurement will continue to show declines in California, probably for the remainder of the year, the month-to-month price trends will more likely be on an upswing. In short, people who buy in June 2009 will likely see a price gain in June 2010.
Will other parts of the country follow California and witness not a slow recovery, but a sharp upturn? We’ve seen evidence of that already occurring in Nevada, Arizona, and parts of Florida. The hard-hit parts of Washington D.C.’s outlying suburbs are also experiencing multiple biddings. But we shouldn’t expect to see the same trend in all markets. The sharp upturn is likely to occur in markets where home prices are overshooting downward (after having overshot way upwards during the boom years). Therefore, most of Middle America may not encounter any sharp upturn in housing because it never experienced the same exuberant big boom and big bust to begin with. And there still appears to be many hesitant fence-sitters in Middle America based on recent depressed home sales despite accumulated steady overall population gains in the country.
To read more from Lawrence Yun – visit http://www.realtor.org/research/reinsights/economistcommentary
SO WHAT DOES THIS MEAN FOR UTAH?
by Derek Seal
Places like Saratoga Springs, Eagle Mountain and Herriman have been hit the hardest with short sales and bank foreclosures. Prices are down almost 40% from their highs. I am seeing multiple offers on many homes up to the $400K price range – what this means is that prices have fallen, coupled with low interest rates, to a level that has encouraged first time and move up buyers. While Utah has been somewhat insulated to the number of distressed properties unlike their neighbors Arizona, Nevada and California – I don’t anticipate a bounce back until 2011. Sales this year are on pace with last year numbers which suggest we are chugging along but this winter I anticipate lower housing prices from November through March of 2010 with increased REO and defaults entering Utah. The bounce back that will happen next year in neighboring states, will take an extra 12-18 months for Utah because we generally lag the Regional Market by about 12-24 months and our inventory levels have remained constant from last year suggesting we still need to work through the over 23,000 homes for sale. For our market to appreciate – we need to reduce the overall inventory from 23K to 15K.
THE BEST DEALS ARE NOW
If you have money to invest in cities like Alpine, Pleasant Grove, Lindon, and Lehi – the McMansions that were built in the last few years and were $750-$1Million are now selling for $400-$550K. This is the price range which is the sweet spot of the market and where you get the most bang for your buck. For a complete list of the best properties for sale – visit www.dereksealproperties.com or www.UtahREOExperts.com