I need to do some chainsawing in the yard. There is brush to be cleared and trees to trim. Unfortunately, my chainsaw doesn’t really want to do any work right now. It needs two basic ingredients… fuel and fire.
The real estate market is similar. There are two ingredients, fuel (sellers/listings) and fire (buyers). Unlike my chainsaw, fuel is plentiful. While we don’t have the record inventories of last year, there are plenty of properties on the market.
Fire on the other hand is tougher to make. And the powers that be are trying. There are things like the incredibly low interest rates, $8000 First Time Home Buyer Tax Credit (FTHBTC) and rock bottom prices.
These interest rates are hanging out close to 5%. There have only been a few times in the last 60 years when that has happened… and they won’t be staying for long. There are forces at work that are bound to push up rates. Things like the Cram-Down bill that is in Congress will add uncertainty to the mortgage market, and that will increase rates. The massive bailout package, followed by the giant proposed federal budget for 2010 will ‘crowd out’ private lending. Simply put, there aren’t enough entities that can lend money to lend the federal government $2trillion AND have money left over for mortgages and business lending. That means that rates will have to rise while borrowers chase the available lending pool.
The FTHBTC is going to expire late in the year. It might be renewed, but there are no guarantees. Of course it doesn’t help everyone, but it DOES help anyone that hasn’t owned a home in the last three years.
How far can prices fall? We are already to the point that builders can’t compete with existing homes in many areas. Of course there is Detroit, where there are homes that the banks can’t give away… but in the rest of the country, and especially here in GA, that is pretty rare. And the homes that many are touting as ‘incredibly cheap’ are often homes with serious problems. I just ran across one a couple of weeks ago that needs $25,000 in structural repairs to deal with the sinking foundation… and the bank isn’t budging on the price. Another has extensive water damage from leaking window sills… and the bank isn’t moving on that one, either… and there were multiple bids on it. But there are other homes that ARE priced very competitively. They are selling in days, not the weeks or months that many would have you think.
In the case of the chainsaw, the fuel line split inside the tank and so it wasn’t pulling fuel. In the case of the housing market, the spark plug could fire anytime. The pieces are in place…