It's bargain time for homebuyers
In many parts of the country, sellers have finally gotten the message: They can't be so stubborn about their asking prices. For buyers, now's when to find deals.
By Michael Giusti, Bankrate.com
Two years of stormy real estate markets appear to have created an ideal climate for bargain-minded house hunters who know where to look.
Real estate experts say a switch in the psychology of the housing market has helped buyers to see the silver lining around the market's storm clouds and usher in the fine shopping weather.
"We are now in a solid buyer's market," says David Lereah, the chief economist for the National Association of Realtors (NAR). "It has been a seller's market for many years, but now we are seeing people across the country making deals and bringing prices down."
A loss of confidence on the part of real estate investors triggered the psychological switch, he says. "What happened was, investors pulled out in droves, and the housing markets went dead," Lereah says. "When the investors stopped buying, regular buyers got scared."
That fear drove many house hunters to the sidelines, thinking that housing prices would continue to fall and waiting to see what would happen.
"At the same time, sellers refused to bring their prices down, and so buyers had no real incentive to get back in the market," Lereah says. "With everybody sitting on the sidelines, the market came to a standstill."
Sellers conceding
With a dearth of buyers, sellers eventually realized they would have to make concessions on their sale prices.
"Now they are making deals," Lereah says.
If the downturn was simply a product of a short-term panic, things would likely be back to normal by now. But Mickey Levy, the chief economist for the Bank of America, points out that the market is also suffering from an oversupply of homes created by an overzealous home-builder community.
"While demand is picking up, there is still that large supply overhang," he says. "And while the numbers are starting to come up for sales, prices still have a bit to drift before they start rebounding."
With a listless housing market, savvy buyers in many markets across the U.S. are finding themselves in the best position they have been in for nearly a decade when it comes to price negotiations. Levy does warn, however, that not all sellers are in a dealing mood.
"Even though existing-home prices are basically flattish on a national level, I would issue a bit of caution with that number," he says. "Housing is inherently a local market, and national numbers are notorious for not offering an accurate snapshot of what is happening in a particular market."
So, while prices in Southern California and parts of Florida may be down significantly, other markets may still be enjoying healthy price gains.
On the whole, Levy says to expect prices, on average, to drift slightly lower as a function of clearing out excess inventory. And inventory is the key.
One way economists rate home sales is by calculating how many months it would take to sell all the homes listed for sale at the current buying rate. That number determines the housing inventory.
According to Lereah, the inventory of existing homes appears to have topped out at 7.4 months' worth of homes on the market.
"That's not bad for a contraction. Usually, you would see double-digit inventories, but that didn't happen," Lereah says. "But interestingly, that low number raises eyebrows because everyone is looking for a bursting bubble."
A turnaround in a few months?
Though Lereah doesn't think prices have yet hit bottom nationwide, he says he believes there are only a few more months where home prices can fall before turning up again. By the end of the year, he expects appreciation to reach 1.4% nationwide.
The latest housing inventory numbers show 6.8 months' worth of homes on the market in January, but Lereah warns that number may be adjusted upward as more-exact figures become available.
"It will probably be closer to seven months when the revised numbers come in. I suspect we will see 6.6 to 6.5 months by year-end," he says. "This takes us to the upper end of normal. As a rule of thumb, 5.5 to six months is a balanced market."
But again, Lereah stresses that housing appreciation is uneven nationwide.
"Some areas of the country saw a severe retraction. Places like Southern California, Florida, Washington, D.C., Las Vegas -- they all saw a sharp recession in real estate," he says. "They lost from 15 to 30%."
Though falling prices are bad news for homeowners, homebuyers in those depressed markets are taking a fresh look at those bungalows that were priced out of their reach just a few months ago.
"All real estate is local," Lereah says, adding that that phrase will be the title of his new book, expected to come out in April.