The distressed US housing market should get a lift this spring as bargain prices lure prospective buyers out of hibernation, but tighter lending means no one should expect the boom days to return any time soon.Spring is a pivotal season in the housing market. Potential buyers typically emerge from a winter hiatus and shop in earnest for a new home or an investment. The strength of the market in March, April and May usually sets the tone for the entire year.
This year, spring has assumed even greater importance as it coincides with a sharp US economic slowdown, triggered largely by a dysfunctional real-estate market. After sales of existing homes sank almost 13% last year, a housing revival could put the economy back on solid ground.
When the housing sector is thriving, so does the economy as buyers spend heavily on new appliances and furniture while owners pump cash into remodeling or additions.
Even in Arizona and Florida, which are among the states most hard-hit by the collapse of the housing market, a few rays of light are starting to shine through.
“If I would have described this whole process as a hurricane coming through Phoenix, I would tell everybody that for the last month I've been taking the shutters off the windows because I think the eye of the storm and most of it is behind us,” said Floyd Scott, president of Century 21 Arizona Foothills, which has 10 offices and 460 agents in Phoenix. “Now we're in the process of picking up the debris.”
In many areas, the choice of homes on the market has increased considerably, with unsold inventory double the typical supply as foreclosures mount and sellers hold out for higher bids.
Indeed, possible buyers are already coming out the woodwork seeking deep discounts.
Signed contracts that have yet to close were higher in January than any month in the prior six, though down 30% from January 2007, said Scott. “We've seen quite a bit of increase in traffic. A lot of people are shopping for deals right now,” he said.
But the roadblock to closing the contracts is ominous. Many lenders are shutting down the money pipeline to all but the most credit-worthy borrowers, looking to avoid repeating mistakes that led to the current wave of bad mortgages.
“One of the difficulties that we are having obviously in the home market is that lending conditions have really tightened up dramatically,” Scott said.
While a flurry of sales this spring may highlight the pent-up demand in the market, it probably would not signal a sustainable housing upturn this year, most economists agree.
“We have this continuing battle with tightening lending standards and it's going to be tough for prospective buyers, even though they want the homes - that's going to be an obstacle,” said Young Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.
Still, demand is stirring as sellers grow desperate to off-load properties. Fixed mortgage rates are low, and some home prices are looking too attractive to pass up.
Bidders are emerging for foreclosed homes and for so-called “short sales” at sharply reduced prices, real-estate agents said. In a short sale, the lender agrees to take a loss and avoid foreclosure costs if the borrower is unable to command a sale price that will pay the remaining mortgage balance.
Gary Kent, a real estate agent with Gary Kent Team-RE/MAX Associates in La Jolla, California, said he had his best sales month ever in January, selling foreclosure homes for banks.
Meanwhile, the average 30-year mortgage rate is around 6%. That's up a half percentage point from four-year lows set last month, but it's roughly a quarter point less than a year ago, based on data from Freddie Mac, the second-largest US home funding company.
The median price for an existing single-family home dropped in 2007 for the first year since the National Association of Realtors began tracking them in 1968, sliding 1.8% to $217,800.
By contrast, prices on average have risen 6.6% annually over the past 40 years, NAR said. Annual double-digit gains were the norm in some areas earlier this decade.
A new government stimulus package will likely also open the doors for more buyers in high-cost areas. It temporarily raises the size of mortgages that can be purchased by Freddie Mac and Fannie Mae, the No. 1 federally chartered home funding company, making some lenders more inclined to approve home loans.
“I think this is the best buyer's market that has existed in a decade, maybe longer,” said Russell Shaw, in his 30th year with John Hall & Associates real estate in Phoenix. “There are tons of inventory, great interest rates and the prices are back in line to where houses are decently priced again.”
“If people have a good track record of paying their bills, the loans are there,” Shaw said.
Arizona is one of several states slammed by overbuilding and buying by investors looking to sell quickly for a big profit. This “flipping” strategy worked well when prices soared, but when prices tanked, many owners could not sell and just walked away.
South Florida is another area overrun with speculators, leading to overbuilding, particularly in the condominium market. “People who are desperate are selling at any price,” said Susan Weitz, an agent with Buy the Beach Realty in the South Beach district of Miami Beach. “Buyers that have been waiting for really, really good buys are in the market now. I am putting in a lot of offers on short sales.”
Still, Weitz thinks the market won't stabilize for another two years, “I am talking people out of selling if they don't have to sell. I am convincing them this is not the time to sell,” she said.
In Boston, a sense of urgency is also returning to the market, according to John D. Murray, a broker/Realtor with Realty Executives Prestige Properties.
A buyer he represents was the winning bidder at the asker's selling price for a condo in the city's upscale Back Bay neighborhood. At least three competing bids surfaced.
Until recently, the vast majority of would-be sellers have had to slice their asking prices to lure buyers.
Still, “even if you talk to people who refinanced recently, a lot of them are finding that the banks are asking a lot more personal and critical questions. It's more daunting and troublesome” to get a loan, said Murray. (Reuters)