Market Recovery: Are You Ready?
After months of doom and gloom, industry-wide panic, and talk of recession, we sure could go for some good news! In one of my recent blogs, I suggested that the market may have bottomed out in October. Housing inventory has not increased since then, and at the end of January, although closed sales were at a 5-year low (partially attributable to the usual holiday slump), the pending contracts to close in February had jumped by 25%.
What do these numbers indicate? They further suggest that we are currently at the bottom of a very shallow trough, but we are beginning our ascent out of this dip, and we are on our way to recovery.
Bill Gray of the Arizona School of Real Estate used a great analogy to describe the current market and pending recovery: trying to light coals on a barbeque.
The coals (the market) have been dampened by the sub prime loan crisis, by lenders applying stricter rules for borrowers, by the increase in foreclosures, and in Arizona, by a slow down in job and population growth.
Now imagine a person trying to light the damp coals by adding more and more lighter fluid. Sooner or later, it doesn't matter how wet those coals were: with enough fluid they will ignite, and the more fluid, the bigger the bang when they do light....
So, in this analogy, what lighter fluid is being poured on?
- Prime rate: A year ago it was at 8.25%. Today, it's at 6%.
- Federal funds rate: A year ago it was at 5.25%. Today, it's dropped to 3.0%.
- FHA loan limits: The federal government through HUD is looking to increase the minimum loan amount for FHA loans from the current $263,150 to as high as $417,000 in the near future.
- Foreclosure and short sale borrowers will be exempt from the tax penalty for the debt forgiven on their mortgage.
- An economic stimulus package is just around the corner...
For more information on the numbers and concepts, we suggest you speak with one of our preferred lenders.
Although job and population growth are down, the current numbers indicate that there is still an increasing demand for homes in the Valley of the Sun. The market does indeed seem to have hit bottom, yet it may be months before the usual indicators catch the turn around.
But like the lighter fluid, the more decreasing interest rates and economic relief gets poured on, the bigger the bang....namely the faster the recovery. Many people may miss it if it happens too quickly. My cautious recommendation would be to start getting your ducks in a row. Meet with us to identify your wants and needs, and talk to one of our preferred lenders to have your financing ready to go....then just wait for the spark....
Happy Valentine's Day.
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