I thought I’d pass along the article (from the National Association of Realtors) regarding the uptick that’s taken place in the real estate market across the country. As I’ve mentioned before, real estate is local. There’s no doubt that the tax credit program was beneficial to our local market, especially in October and November. We expect to see a similar boost in the first quarter of 2010, and we sure could use it because the current activity has been very slow, even for December. This recent winter weather doesn’t help at all.
As I’ve passed along in recent statistics, our year-to-date sales in Owatonna recently increased as compared to the same time in 2008, however, based on the pending sales that we’re seeing now, we may slip a little as compared to 2008 by the end of the year. Since real estate is the biggest consumer purchase, our market is still so dependent on job confidence. One of the agents from our office has been working recently with a buyer who wants to put the brakes on his negotiations at the moment to get a better view from his employer about the security of his job. These weren’t issues that we dealt with just 1 ½ years ago. The climate has changed so dramatically.
We had the chance to sit in on a meeting earlier this week which was sponsored by a large national lender. They presented information about the expected foreclosure rate in 2010 and 2011. Their analysts predict foreclosures to quadruple through the year as compared to current levels. That’s amazing, considering that 3-4 years ago foreclosures weren’t at all a consideration in our market. Bank owned properties have changed the competition for owner occupied homes, and have impacted pricing in a negative way. This trend has also, and will continue to force lenders to tighten their credit standards and lending practices. Where’s the good news, huh? The lenders are still lending, but there will be fewer buyers (and properties) that qualify for financing. We can also expect the lead time from purchase agreement to closing to be a little longer than in the past. They are scrutinizing a buyer’s credit and history so much more than they ever have. On the bright side interest rates are at 50 year lows, but they do see that increasing over time – but still low.
The result is that a solid credit history and strong FICO score will be more important than ever for homebuyers. Sellers will be facing more competition, not less, from foreclosure (bank owned) properties. Down payment requirements will probably change (increase) and the time frame to purchase will lengthen. They expect the emphasis on first time buyers to continue to increase. This year they saw first time buyers account for 52% of their mortgage business and see that percentage climbing in 2010.
All in all, we continue to deal with the challenges of our market as best we can. We’ll be providing a lot of information to first time and repeat buyers in hopes of getting the tax credit incentive info to as many people as possible. Right now, as many of our sellers know, home values are wonderfully appealing for buyers, great selection is available, and the interest rates (especially coupled with the incentives) provide one-in-a–lifetime opportunity for buyers. We hope that many more buyers will be positioned to take advantage of these values – and we’ll be doing our best to get the message out and help them through the process.
As always, please don’t hesitate to call or e-mail me with any questions. Stay warm!
Washington, D.C., December 1, 2009
The
Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.
Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the home buyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.
The PHSI in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago. In the Midwest the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008. Pending home sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago. In the West the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.
Yun cautioned that home sales could dip in the months ahead. “The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.
“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
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