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Welcome to my Market: As Sellers Get More Flexible, Buyers Get a Break

Real Estate Agent with Coldwell Banker Seaside Realty Nags Head


Welcome to My Market:
As Sellers Get More Flexible, Buyers Get a Break
by David Lereah, NAR Chief Economist

We begin the New Year with a hint of optimism. The glass was half empty in 2006 - home sales fell throughout the year. But the glass looks to be half full in 2007. While property speculation has ceased, signs of a return to home buying have surfaced and inventory levels have topped out. REALTORS® and lenders alike are encouraged, but guarded, about 2007.

Last year was a year of contraction, a correction that was sorely needed after five years of a booming housing market expansion. Home prices were inflated and property investors (and speculators) were everywhere at the end of 2005. That set the stage for 2006 to spiral downward. Home buyers stayed on the sidelines because they could not afford the lofty-priced homes in the boom-inflicted regions. Some households also postponed buying because they believed prices would eventually drop, making them better off buying later rather than now. Property speculators fled, dumping inventories. Meanwhile, homeowners looking to sell sat stubbornly tied to their listing prices.

Let's be clear, though. The sky never did actually fall in 2006- or, to use that phrase that the media love, there were no "bubbles" bursting. But air did come out of some inflated balloons. According to our National Association of REALTORS® latest estimates for last year, existing home sales were down 8.2 percent from a year earlier. Similarly, new home sales were down 17.4 percent and housing starts were down 12.5 percent. Our nation's housing sector suffered a contraction, inhibiting overall GDP growth.

But 2007 is a new year and with it brings a cautious confidence and hopefulness. Home sales appear to have bottomed out, having reached a cyclical low in September of last year. And in recent months, home sales are inching up, not down. Existing-home sales experienced two consecutive monthly, albeit modest, gains from September to November. Inventories have stabilized, with the nation's months' supply hovering around 7.3 months since July of last year.

What all this means is that potential home buyers have a more favorable backdrop for buying today. It is now a buyers market. Sellers are more flexible now, reducing prices and/or paying part of the closing costs. High inventories are now a positive rather than a negative for property buyers. Rising inventories in 2006 reflected a deteriorating marketplace, keeping buyers on the sidelines. Stable inventories in 2007 represent more choices for buyers. Mortgage rates continue to hover near cyclical lows, keeping financing costs low. And depending on where you live, affordability conditions are most likely improving. Wages (income) are registering healthy rates of growth, while home price growth is flat or down, broadening a household's financial
capacity to purchase property.

Yes, housing was bed-ridden at the end of last year. Existing home sales hit bottom during the fourth quarter of 2006. But after a frenzied five-year real estate boom, a reasonable prescription for our nation's housing sector is regular rest and a healthy regimen of exercise. I expect housing to get back on its feet in 2007. Our forecast calls for modest quarterly gains throughout this year, but year-over-year, home sales are expected to fall by a modest 1.2 percent. New home sales are not expected to rebound until the third quarter of this year so year-over-year sales are expected to fall by a larger 9.7 percent.

Looking back, 2006 was a year of contraction. But looking forward, 2007 will represent a year of stability. Cheers to the New Year.

Bob Sloop, Consultant, Indianapolis, IN
RS Mortgage Consulting - Indianapolis, IN
Ruth Ann, I enjoyed your post, and I agree, market last year was down here too.  Lets see what we can do to jump start the next quarter and take off running full speed ahead, ya think?  Take care, and welcome to A.Rain, will be looking for more posts too.
Apr 06, 2007 09:03 AM