Have home prices finally stabilized or are they still too high? The answer often depends on which side of the real estate fence you sit. For obvious reasons, many real estate professionals, mortgage brokers and homeowners would like to say the worst is over. However, some recent reports and the behavior of prospective homebuyers indicate that may not be the case.
Many sellers in today’s topsy-turvy market don’t want to believe the good old days, when they could slap any big number on a property and get multiple offers, are over. In many markets, sellers are resisting the inescapable reality of the steep decline in home values that has swept through most markets and they continue to put unrealistic asking prices on their properties. Some are simply being bull-headed.
Others are in an economic pickle because although they would like to or even need to sell their house, “the new market value is lower than what they owe their lender,” according to Realtor Erin Kaelin of Century 21 Agawam Albertson in New York.
It’s About Value
The actual value of real estate is not determined by the asking price of a property, but by the amount a buyer will pay for it. The quick and sharp shift from a seller’s to a buyer’s market has many home seekers foaming at the mouth, thinking they can snag a house for much less than they could have two years ago. In short, they want a bargain. If sellers are unwilling to negotiate, buyers are increasingly willing to walk away. Inventory is high enough that buyers will move on to another house, wait until the seller starts lowering the price, or simply stay home until the market reaches its inevitable, but impossible to time, bottom.
The buyers’ thirst for bargains and sellers’ resistance to realistic pricing has both parties locked in a pitched battle of real estate chicken, a sorry situation probably cured only by sellers lowering their asking prices.
Mortgages Come Down To Earth
Gone are the days of “stated income” and so-called “no doc” loans where buyers were not required to prove they could afford the property. Although this may be sensible economic policy, it does make things tougher for both buyers and sellers.
Just a few years ago, buyers only had to show good credit scores and say they could afford a property.
“Lenders now require complete documentation,” says mortgage broker Karen Bishop of Manhattan Mortgage. “This includes verifying employment, income, credit scores, debt and proof of cash on hand for a substantial down payment as well as being able to show a large amount of post-closing cash reserves.”
Although some of the monetary infusions made by the Fed and Treasury are starting to seep out into the mortgage market making more money available to loan, the reality is, fewer people than ever can qualify for homes at current prices with traditional mortgages, even with interest rates at historical lows.
A Holding Pattern?
Not only is mortgage money difficult to get, unemployment is still rising, housing starts are down and, despite the somewhat rosy economic scenarios put forth by President Obama, there is a palpable economic insecurity in the general public. Americans are increasingly less willing to part with the dollars they have in fear they too may lose their jobs. This means fewer folks are willing to commit to buying big-ticket items like electronics, cars and real estate, even if they have the money.
As the Fed and Treasury do everything they can to re-start the engines of the economy, some of their actions keep housing prices higher than they might be without their intervention. Keeping interest rates shockingly low and buying up the bad debt many banks took on with sub-prime mortgages is meant to free up more capital for banks to lend. However, the reality is that many banks are using their government financial aid to help balance the debt load they are carrying with homes already in foreclosure.
Many banks are sitting on a huge number of foreclosed properties that have yet to be auctioned or appear on the open market. This is called shadow inventory and some industry insiders think that as long as these homes are kept off the market, home prices are being kept artificially high.
Where Are We Heading?
The real estate market may no longer be in a free fall. But many signs still point toward a difficult and stagnating market which will continue to stymie sellers and may keep potential buyers renting, even though in many areas of the country homes prices are lower than they have been in years.
“With prices coming down and interest rates incredibly low, buyers are eager to get into the market. However, prices are still too high for so many, particularly at the lower end of the market, where lending is tight and banks are often requiring buyers put a larger down payment than they’ve had to in the past,” says Burt Bakman at Coldwell Banker in Beverly Hills, Calif.
The good news, so long as our market-based economy behaves as it should, is that the housing market will eventually find its own economic level and the real estate boat will eventually right itself so that buyers and sellers are once again on the same page. As far as when…we’ll have to get back to you.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.