Sunday, March 8, 2009

This Is Not What Potential Buyers Want

This is what potential buyers fear. It's very simple. The above graphic. The number of mortgages "underwater," meaning a mortgage for which more is owed than the property is now worth, is expected to rise to 16 million during 2009. According to First American CoreLogic, that's about 20%. If prices fall just 5% more, the figure will rise to 25%.

Prospective buyers fear closing on a house that will further decline in value. This fear is often countered with the assurance that the "loss" can be made up with 5-10 years ownership. There is absolutely no guarantee of this. The economy, and housing, are in absolutely uncharted territory here. We're all Lewis & Clark now.

This is also what buyers fear: each week the news gets worse. While there was talk that the "Recession" might bottom in 2009, even the Fed is now saying it looks more like 2010.
And this doesn't include the "housing market."

Here's a recap of this past week's news:
The market plunged this past week; GM faces bankruptcy; and AIG's bailout money seems to be going to Goldman-Sachs and other Wall Street banks.The national unemployment rose to 8.1% as of Friday, March 6. This is the worst number in 25 years. And the FDIC, Federal Deposit Insurance Corporation, which allows you to sleep at night by guaranteeing that if your bank fails, your cash is still available, itself could go broke if it doesn't get $500B.

Economists React included Stephen A. Wood of Insight Economics, who said, "The recession is intensifying and the economy is rapidly shrinking. We are staring into the abyss."

This is the national environment in which the local/regional buyer finds himself.
Is now a good time to buy? That's a personal decision. One thing local buyers don't have to worry about: supply. But what about rates? Since mortgage rates are at historic lows, there's the fear that "Mortgage rates might go up." Sure, 30 yr. conformings went up a touch this past week. But the Fed is still buying Mortgage-Backed Securities.

As HousingWire reports, Bankrate’s Holden Lewis said mortgage brokers and lenders say their clients keep holding out for even lower rates. But considering mortgage rates have hovered around 5.5 percent, give or take a quarter of a percentage point, “it doesn’t take Sherlock Holmes to deduce that the feds have mortgage rates right where they want them."
Read here. But don't take our word for it (or, for that matter, a Realtor's opinion). Check with your own mortgage professional.

And as one commenter recently put it,
"...if a buyer isn't paying 100 grand too much for a house, a rise to 6 from 5 in interest rates isn't going to deter a sale."

Related Reading:

332 Minor Ridge Road: Listed at 37% Less Than Bank Paid
Cville/Alb January Sales and February Inventory
January Pending Home Sales, Nat'l, Regional, Local

Why Aren't You Buying Right Now? - RealCentralVA
A Mad Mad Real Estate World - RealCentralVA
Stealing A Home - Dirt Around Grounds

1 comment:

Cville Buyer said...

This is exactly what I'm concerned about. Still, I'm continuing to look because I need a house, a place to rely on and do what I want with for the foreseeable future.

I'm obviously not a mortgage expert but I honestly can't imagine rates going up too far this summer when the condition of the housing market is critical to economic recovery. Buyers are vital (just look at the 1st time homebuyer tax credit).

Even if the rates do go up, I can live with some rise if I find a house we like whose price just doesn't make me feel like I'm being taken advantage of because we have the good sense to live here.