Changes to the Market

So Spring has sprung but where is the rush to real estate?

Here in the Chicago area, that's a really good question. The state of affairs is a bit puzzling to everyone out there. It is like everyone is at a standoff when it comes to what to do.

My analysis of things is similar, I'm sure, to a lot of brokers out there in the marketplace.

Interest rates are still on the rise, but interestingly enough, it is the short term rates that seem to be impacted more. I've been told that, the artificially low rates are based on changes within the bond market. One theory, (and a fairly reasonable and reputable one at that), makes the assertion that when the Federal Reserve raises rates, a flood of foreign money, (presumably Chinese held dollars that, because of our trade deficit/surplus, the Chinese are reinvesting in the stable, conservative yield, US bond market), comes in and actually keeps rates the same or can actually push them down. The Fed has raised rates and unprecedented 15 times which has never happened in US history. Economics on a global scale have not worked the way, I'm sure, many people may have imagined. As a result, we are actually making history here. Interest rates in the States are being affected and influenced by foreign markets quickly and directly and in ways no one may have perceived.

This has spelled good news in the US housing market for awhile now but it definitely appears that the boom in home equity lines of credit, (which generally have adjustable rates and can, under the present circumstances, fluctuate wildly), as well as ARM, (adjustable rate mortgages), and Interest Only mortgages, is over. People are moving to more conservative, fixed rate products to maintain some stability during some unpredictable times.

Still, 30 year fixed rate mortgages continue to hover in the mid 6% range which is STILL excellent.

Now let's turn our eye to the housing market.

While I don't see a bubble, I am definitely seeing a slow down. I am attributing this phenomenon to a number of things.

With rising rates, the number of people who can actually afford to purchase is going down.

People are now being more choosy about what they buy. Although everyone realizes that purchasing a home is a big decision to begin with, I think they also realize that if the upward trend in rates continues, it may be awhile before they move up to their next home. I think more people are looking at purchasing long term and staying put a minnimum of 5-10 years.

Also, I am seeing a lot of buyers in the 20 something to early 30 something category and they have different expectations. Many of these buyers are young professionals who do not want to concern themselves with earning any "sweat equity" they spend a lot of time at work and at play and don't want to compromise their lifestyles. Thusly, they expect that any home they purchase, (be it single family, condo, etc), be in tip top shape and updated to reflect the expectations of the millenium home.

Where do I go? This factor is huge for sellers. Many sellers are faced with the dilemma of having a lot of equity in their home, but moving up to that next home, (larger home, better location, etc), can actually cost them way more. Thus, many sellers are concerned about what to do or where they will go after the sale of their homes. Because of this, many sellers are content to hold out for their ideal asking price. There is simply less motivation to sell.

So the market has come to a standoff, as opposed to a standstill.

Buyers are either looking for value and are taking their time to make the perfect choice, or if they are inclined to pay a premium for a home, they expect it to be in tip top, spot on, shape.

Seller's, unless under financial duress or pressed into selling for other circumstances, (ie, divorce, job transfer, etc), are inclined to hunker down for the long haul and wait until they get their asking price.

As a broker, it is sometimes difficult to bring these two factions to a meeting of the minds. They both, essentially, are looking for the same thing, which is value. Unfortunately, they are on polar opposite sides.

Of course, what people see on television doesn't help either. There are a plethora of home shows touting how some new drapes, a coat of paint and a new slipcover on your sofa can bring you thousands, if not tens of thousands of dollars in additional value when you sell your home. This is simply not to case. What people fail to understand is that the majority of these shows eminate from red hot California where it has been a seller's market, to the max, for many years with no sign of slowing. It is one thing to stage your home for a quick sale and, hopefully, acheive as close to one's asking price as possible. It is quite another to expect multiple offers and frenzied buyers who are ga-ga over your new paint job and are willing to pay OVER your asking price.

Of course, as with many things, this is something that almost ONLY happens on TV.

Remember folks, even if it is "reality TV" doesn't mean it is real. After all, once you add "TV" to "reality" you create an oxymoron.

Look for me to talk about investing in upcoming posts.

Cheers!

Rick