07/09/2009
TIMING THE REAL ESTATE MARKET
TIMING THE REAL ESTATE MARKET
THOUGHTS FROM CASEY MARGENAU
For buyers and sellers the last year or two have been difficult. You don’t need an economist to tell you that your home is worth less than it was just a year ago. The question is, what does that mean for you as a potential seller and buyer? The answer is: nothing. Unless you bought during the inflated price period of 2004-2007, you still have equity in your home. Yes, it may not be as much as you did 2 years ago, but the prices to buy your next home have also come down. If you play it smart, you will be able to sell you home and buy your next home at a great value.
We have experienced an unusual, even generational, low in mortgage rates. This has been the result of the severe recession we are going through and the policy of the Federal Reserve to stimulate growth with low interest rates. However, the Fed can affect long-term rates only briefly. Long-term rates are more a function of inflationary expectations and prospects of economic growth. And given that both the latter are in play right now, it is not too surprising that mortgage rates are inching upward. Whether they will continue upward from here is another story. But at some point in the future—the future being a year of so-- they undoubtedly will be higher.
Mortgage rates fluctuate. They are always in flux. Back in 1990, the 30-year rate averaged 9.9 percent, a far cry from levels we are enjoying today, even with the recent up-tick in rates. Five years earlier, rates were above 13 percent and peaked at roughly 17.5 percent in 1982. Since the year 2000, rates have moved between five and eight percent, reaching a record low of 4.85 percent recently. Which is exactly why is makes sense to buy a home now that makes sense for you for the long run and lock-in on a low interest rate.
However, your decision to purchase a home should not be too dependent on the current level of mortgage rates. If the current one-half or so up-tick in rates makes your purchase debatable, you are probably looking at too much house to purchase in the first place. In my opinion, you should always give yourself enough room between your income and your expenses to feel mentally comfortable and financially safe. Buy for the future. Make sure you make wise decisions. Remember these mantras. Those that purchased homes during the turn down of the 1990’s understood the long-term investment they were making and have seen their wealth grow from their purchase decisions while many were sitting on the sidelines.
I believe we have reached the bottom for home prices and in some areas prices have begun to recover. But, if they have not completely bottomed out, they are certainly near their lows. There are many indications that the Northern Virginia area will emerge from the recession sooner than other areas of the country. Home prices will then also firm up sooner.
Here is the good news in housing from the Fulton Research Report that was just released. The Northern Virginia Association of Realtor’s (NVAR) May numbers reported monthly housing supply down 16% from April 2009 and 28% lower than May 2008. Additionally, inventory is down 25% over a year ago and sales are up 17% since April this year and 5% since May 2008. With sales activity continuing to improve over last year’s levels and monthly supply now to down a 5 month inventory level, which is about equilibrium, some appreciation is expected as inventories tighten, according to the Fulton Report. The report goes on to say that in the NVAR markets that “sales of marketing rate housing, specifically move-up homes, are starting to push prices up.” They expect the price pressure indicators to turn positive next month for not Fairfax, Arlington and Alexandria but also for Loudoun and Washington D.C.
As a seller, remember that buyers have a lot of selection. This means they can and will be a lot choosier. If you want to sell your home, it has to be well-priced and look good. For those who want to buy, my best advice is put your credit in order, get with a knowledgeable real estate agent and shop for a mortgage in order to get pre-approved. Instead of worrying about market timing, buy for the long run and you will always make wise decisions.
Casey Margenau is a Realtor with Re/Max Distinctive in McLean. He may be contacted at casey@margenau.com or at (703) 827-5777.
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