by Dan Krell © 2007
The first quarter of 2007 is almost at an end. Tax returns are due in a few weeks. Spring Training has begun. And the spring real estate market is in full swing. Or is it?
Yes and no. Home buyers are looking. However, many of the homes that have languished on the market through the winter are still unsold, or have gone under contract at greatly reduced prices. If this is happening now, what are we to expect in the future?
Looking back to 2006 we all agree the market slowed down a bit and almost to a stand still by winter. Although it was a sluggish year, the National Association of Realtors considered 2006 to be a respectable year. Looking at the numbers nationwide, it was indeed a respectable year. Although existing home sales decreased 8.4% last year, it was the third best year on record for such sales. Additionally, new home sales decreased 17.3% and recorded the fourth best year on record for new home sales. Believe it or not, the NAR reports that homes prices increased nationally 1.1% for 2006, which is a record thirty-nine consecutive years of home price gains.
For 2007, the NAR forecasts a year much like last. Existing home sales will be consistent, but not as strong as last year, while there will be a slight increase in home prices. It is uncertain, however, how new home sales will manage (Realtor.org).
Fortune’s picture for the immediate area isn’t as rosy. Their December 21, 2006 forecast of home prices for the Washington area predicts a decrease of 3.8% in 2007 and 3.2% decrease in 2008. The forecast for the Bethesda-Gaithersburg region predicts a 2.7% decrease in 2007 and 4.3% decrease in 2008.
As a whole, economic forecasts point to a stable economy with stable employment and minimal to moderate growth. As you can imagine, many reports indicate that housing will continue to be a burden on the national economy. Reports predict that the burden will continue, however, through mid year 2007 and remain stable through 2008.
Prognosticators projected that the spring market for 2006 would be business as usual. Locally, the market preformed inconsistently. The spring market for 2007 will be inconsistent as well. As the local real estate market attempts to find its balance the market will continue to be slow through spring. Unless there is a major disaster, the sales pace will pick up in May as the market levels off.
Contributing to the continued lethargy is the fallout in the sub-prime mortgage industry. The tightening of credit guidelines due to over zealous speculators in the secondary mortgage markets has recently reduced the already shrunken pool of home buyers. Like most market commodities, investors will one day again find their appetite for sub-prime mortgages.
Home prices will continue to adjust, having an effect of tightening the available housing inventory. As many home sellers are already offering their homes at a break-even price, some home sellers will find that they cannot afford to sell as they would lose money on the sale effectively taking them out of the market.
By the end of the summer 2007, the effect of a tightening market will bring about the balance that we have been waiting for – hopefully.
This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 19, 2007. Copyright (c) 2007 Dan Krell.