Well, it isn't great. But it isn't terrible. The market is presently going through the contortions and motions that preceded a recovery. These are partly due to government oversight, partly due to Fannie & Freddie growing a spine, partly due to pent-up marketplace demand and all leading in the direction of a turbulent spring and marginal recovery by year's end.
Locally, the FEAR OF GOD has been placed in the marketplace by Erin Toll, Real Estate Commission for the State of Colorado. Most of the real estate community finds this to be a great nuisance. I will say publicly here that it is a nuisance, and welcome one at that. Ms. Toll may be hyper-aggressive, she may be considering a statewide political office, she may be more powerful than constitutional permissible (I don't thing she should have access to the PPAR MLS system for instance), but she is doing a whale of a job in creating a safer, more consumer-friendly real estate system for future generations. Am I a suck up? Well intelligent consumer, you decide: She began policing appraisal practices aggressively in 2006 when loan fraud was booming. This lousy practice created the biggest problems in the market: appraisers and underwriters rubber-stamping values for buyers who had not gone through any sort of rigorous qualification system. A month ago, 9000 licensees were deactivated because they didn't order their errors and omissions insurance correctly. Add this sort of "your livelihood is inconsequential before the law" type of paranoia to a stressed out marketplace where the average agent did less 5 deals last year and an appraiser knows a single appraisal error could revoke their license and you can see how much fun this market is. The short-term effects of big government on a conservative-minded industry are pretty ugly. Yet... will these actions get the bum appraisers out of the business? Yep. Already succeeded for the most part. Will the Dept. of Regulatory Agency's increased spotlight on the real estate community lead to better business practices among actual career professionals rather than people who have brought the caliber of the industry down to ambulance-chasers? Will the consumer benefit from this? They already are.
Your trillion dollar wards of the state are actually starting to function like they are supposed to. Underwriting rules border on the obscene, the legal disclaimers at closings are increasing, and for all of you who are boggled as to how "losers and idiots" got loans in 2006 and 2007... well Fannie and Freddie apparently have invoked loser and idiot clauses. They ain't getting loans. What they are doing is bogging down the market. In combination with PrivateMortgageInsurance and their increase in risk-assessed rates for borrowers with less than 20% equity, Fannie and Freddie and only allowing in the most credit-worthy of borrowers. Right now, that is not a lot of people. The credit-worthy are usually existing homeowners, and move-up buyers need first-time buyers to buy their home first (see DISCUSSION in the Stat Pack). So what are Fannie and Freddie doing? Kicking things over to HUD and FHA. FHA is flooded with business right now as 80% of the local market is buying for the first-time. The downpayment has increased to 3.5% (from 3%) but with many sellers willing to pay closing costs, the $8000 tax credit on a 2009 return essentially would cover the entire expense of a $223,000 purchase. Average selling price in the first quarter? Just under $210,000.
The first-time buyer was rare in 2006 through mid-2008. Rates were good but not great, prices looked like they were going to fall (newsflash: they did), there was no timetable to act, and everyone knew a half dozen people who had been "Screwed" in the real estate bubble. So they sat. They're not sitting now. With the November 30th deadline to take purchase action, buyers that aren't acting yet are saving up to act by Thanksgiving. Where is there no pent up demand? The luxury market. They had their bacchanalia from 2003 to 2007 and Jumbo financing is still on the sidelines. Presently there is a five-year supply of housing over $500,000. The unit sales for MLS units over $500K are down 62% from two years ago. First-time buyer price-range activity (under $225,000) is off merely 15%. According to my sources within the power structure of the Nat'l Association of REALTORS (Michael Labout = The Mole), The Federal Reserve is actually inviting NAR input on Jumbo reform. That would unclog a lot of the market is a loan over $417,000 had a fixed 30 year rate less than 6% (it's still over 7%).
Further turbulence ahead leads to optimum benefit:
Take your Rolaids, the rest of the year is going to be rocky. I personally look forward to the fall out within the profession as those that are not in the business to promote positive relationships and business practices get their karma kicked-in. Sorry for the latent aggression in that last statement, but the accidental REALTOR's reign is done. The social media pro's, and for that matter, the social pro's with cast-iron guts and cash will survive. The next nine months will weed out REALTORS who don't have sufficient technology skills; who don't make a practice of being in-flow and real-life with their clients (if you treat it like a transaction or paycheck, quit now); who don't have the resolve, the plan, the patience or the temperament to deal with the free-flowing blood in the streets of this economic meltdown where these is no such thing as an easy transaction; who don't have actual cash reserves. We are entering year four of the real estate correction. It began 36 months ago in April 2006 when supply went up, demand went down, on the market prices went up, average selling price went down, interest rates spiked, relocation slowed down and months of inventory skyrocketed... all in a single month. That one whacky bump sent our entire market tumbling. How does this history effect the consumer's present timeframe?
Choose your representation wisely. How badly do they need this deal? A year or two ago, you could use their "need" to your advantage. Now... that need is probably at your peril.
Sellers who want to sell versus sellers that need to sell have figured out that their home is worth less than it was before. They've priced it as such and are still willing to talk. If you want a remarkable deal, don't bother with the "want to sell" sellers.
There were only 566 single family unit sales in March, 2009. There were 1040 in March, 2005. There were at least 350 new built sales that month that were not recorded in the MLS, so actual volume is down a staggering 60%+. BUT... there are almost 1600 pending and under contract properties right now. The wave of Fannie Mae repos at blow out prices that surfaced in December has already retreated. The troops are beginning to show up. The air force relos are starting to show. It's a six month sprint to November 30th.
There are fewer months of market supply (8.7) now than the same time last year (10.1).
If you can sense the clock ticking, well... it is.