Photo by Sean Dreilinger
Hoping to sell your home soon — or at least see its value bounce back? Prepare for some discouraging news.
Despite low interest rates and the looming deadline for the $8,000 federal tax credit for first-time home buyers, new sales data points to a housing market that’s still sluggish, stuck in the trough that’s kept sales figures low.
The National Association of Realtors said Tuesday that sales of existing homes in February dropped slightly from the previous month, and so did the national average price of a home. The group said 5.02 million homes sold in February, down from 5.05 million in January. The median sale price of $165,100 reflects a 2% drop from a year ago.
Andres Carbacho-Burgos, an economist at Moody’s Economy.com, says these small variations reflect a fairly stagnant period for the housing market. He says it remains somewhat paralyzed by a combination of high inventories of foreclosed homes in many areas, tight credit markets that make mortgage lending difficult and high unemployment, which leaves people thinking about keeping their homes rather than buying new ones.
“Sales decreased substantially in December and January and slightly in February,” he says. “Now they’re at the same level as they were in June 2009.”
Carbacho-Burgos sees the Obama administration’s $8,000 tax credit program, which expires April 30, as having largely run its course as an incentive for new buyers, many of whom will likely wait for prices to drop even further before making a purchase.
“There’s still a lot of foreclosure inventory that will potentially hit the market next year and will continue to exert downward pressure [on home prices],” he says.
When Housing Hits Bottom: Up To The Banks?
Ironically, how far prices may yet decline and when they’ll hit bottom depends largely on the the very institutions who arguably got us into the housing mess. “A large part of it depends on the individual banks and mortgage lenders who are holding foreclosed homes and how long they decide to sit on these homes rather than sell them,” Carbacho-Burgos says. If foreclosed properties are dumped on the auction floors for sale in large numbers, that will depress prices even further.
And while mortgage rates remain low, getting financing remains tough and taking on the huge financial commitment of a house in an economy that’s still shaky is holding some people back.
On Wednesday, the Mortgage Bankers Association reported that new mortgage applications dropped, slipping 1.9% from the previous week, on a seasonally adjusted basis. Home purchases were down 13.9% from the same period a year ago.
Still a Buyer’s Market: But Where Are The Buyers?
While there will be plenty of buying opportunities, with more foreclosed homes – as many as 2 million by Moody’s estimates — coming to what promises to remain a buyer’s market, the buyers themselves are still pretty leery, says Carbacho-Burgos.
“The economy is starting to recover but the labor market still hasn’t – the unemployment rate is still close to 10%,” he says. “The rate of job losses has decreased but we haven’t started adding jobs yet. So the job market is still dampening demand for home purchases.”
Sellers shouldn’t feel complete despair. Some areas of the country, particularly the Northeast, are starting to see some improvements. Residential construction – new housing starts – hit a bottom in 2009 and will show a slight pickup this year. Some foreclosed homes will sell quickly, and Carbacho-Burgos believes the final market bottom will be reached by the end of 2010.
Will Swarts covers real estate for The Real Deal. He is based in New York City.