I was recently asked by an old friend, an innocent question
in his mind I am sure but as you can see from my answer it is anything but a
simple question. He asked, “How will the
market be in the spring?”.
Here is the response:
You ask an interesting question which requires me to pull
out my crystal ball. Here goes my best
guess. There is a lot of uncertainty of
what can happen in the spring. There is
speculation that the extension
of the Tax Credit will pass and be offered to all buyers (with
restrictions) through April 30th, then reduce quarterly through the end of the
year until it is gone. This measure will
help sustain momentum that we currently have in the market – especially in the
under $400,000 market. In all likelihood
it should pass this week. This, as
previously mentioned will be good for our market.
At this time we have very low inventory – it's down 54% from
this time last year. It has been rumored
will be released into the market by the banks – the question is, how many
are in NOVA and how will they be released?
Slowly or just dumped. If we have
a lot and they are released simultaneously, how far will prices fall? We have seen the phenomenon of prices falling
with low supply and high demand – it is a true economic anomaly in my
opinion. If they are released
strategically and are allowed to be absorbed by the market naturally, we will
continue to see a rebound price wise and have a healthier market. Tying into this question is how soon will
they be released? This supply and demand
aspect which is tied to pricing is also critical to the strength of new home
sales. With the cost of land, builders
can’t build product and make money in many areas, they are “shut out” of being
able to build. Until we see an increase
in prices, many builders will remain on the sidelines. This carrot of foreclosures has been dangling
in front of us for about a year now.
Stay tuned on this one as it may be a critical piece to our housing
recovery depending upon how it is handled.
Mortgage interest rates are low now but have slowly
increased upward the last few weeks.
The government has committed to buy Mortgage Backed Securities through
next spring – to the tune of $1.2 trillion.
Who will step up to buy these securities in the future? If no one does, how high will rates go and
how quickly? Additionally, it appears as
if we see the high loan limit of $729,750 stay at this level for our area, if
it doesn't, how drastically will it hurt the upper price points that are
already experiencing a slower market.
Right now, we have buyers looking for homes, we have low
inventory levels, low interest rates and loan programs to get buyers into
houses. It is a great time to be in the
market. Over the next few weeks, we will
see how things play out for the spring – beyond that will require a second
crystal ball. Hope this helps!