Opportunities DO Exist in Today's Housing Market

By Sara Huebener

These days, more than ever before, the status of the real estate market seems to be a hot topic.  The years 2000-2004 were incredible times for the Twin Cities housing market for many local homeowners.  The market was accelerating rapidly, and at its peak, houses were selling fast and for top dollar.   People were making a good return on their investment.  Many people used this real estate bull market to upgrade their homes and provide a higher standard of living for their families.  

As is the nature of all markets, the bull was followed by the bear, causing people to unexpectedly see their home values decline and retirement accounts plummet.  A myriad of questions now exist, ranging from "how much did the value of my home decline, if at all?", to "have we reached the bottom of the market?", and "how long will it take to get back to where we were?"   Such reasonable questions deserve reasonable answers, however no one can provide a truly solid response.   That said, there are some encouraging signs in the marketplace. 

The Southern Twin Cities Association of REALTORS® Market Activity Report for January 26, 2009 reports that inventory is hovering around 25,000 homes.   That's a 10% reduction since the same time last year.    Pair that with a 13% increase in pending sales since one year ago, and I see signs of recovery on the horizon.  These are promising statistics, and 2009 promises to be a year to "watch". 

So what does all this mean for local homeowners?   That depends on each individual's situation.   Those who are planning to upsize (and are in a positive equity position in their home) should consider doing so now.  Many high-end homes are being offered at fantastic prices.   If you must sell before you upsize, consider that what might be a lower sale price than could have been obtained three years ago can quickly be recouped in the savings from the larger purchase.  

Now that we are seeing favorable conditions for buyers, first-time homebuyers have phenomenal opportunities before them.  Lower pricing caused by the rise in foreclosures, paired with a $7,500 federal tax credit offered through July 2009, provides first-time homebuyers with a great incentive to make a home purchase.   A glance at the collective benefits of still attractive inventories and low interest rates creates an attractive opportunity purchase a home. 

The often heard justification for not buying now - waiting until the market "hits the bottom" - is an erroneous belief.  By the time we realize when the market reached bottom, it will already be on the way up.   Just as we cannot determine when the stock market will rise and fall and positively secure our personal outcome, the same holds true for the housing market.  

Should sellers in the mid-upper price range ($300-600K) be concerned about the first-time homebuyer market?  Absolutely.  The reason is simple.  When first-time buyers can purchase a home, the sellers in those transactions (when not bank-owned) translate into more buyers for the mid-upper price point.   Real estate sales can be analogous to a domino effect - when a home is sold, the seller often buys another home, and the seller of that home buys a home.  The dominoes continue to fall.    When a property is bank-owned, the transaction essentially stops when the buyer completes the purchase.  As the foreclosed homes are absorbed into the marketplace via homeownership, we'll find that a higher percentage of homes for sale will be owned by someone who also needs to buy.   And this is good for the marketplace as a whole because the domino effect will once again be in play.  

Now is also a terrific time to build personal wealth and expand portfolio diversification.  One of the unfortunate side effects of this economy is that many people may not be able to purchase a home for several years.  Consequently, the rental market is expected to be quite strong for the next 3-5 years.  This high probability, paired with current extraordinary real estate values, create a great opportunity to acquire investment property at a price where profitability is likely. 

All said, there are some solid facts we can keep in mind during this time of uncertainty.  While it is natural to be concerned about the value of one's home, we should keep in mind that if the market is always favorable for sellers, the ability for first-time buyers to enter the market (in the long run) would become increasingly difficult.    Those planning to upsize have tremendous opportunity to capitalize on this market.  And if you have ever wanted to invest in real estate, there is no time like the present.  The market is cyclical, and with the overall philosophy of homeownership being for long-term gain, ebbs and flows are normal and should be expected.  The key is to take advantage of the unique opportunities that each rise and fall in the housing market present to us.