Wednesday, March 19, 2008

A Housing Market Turnaround - What Will it Take?

The current housing market has many people wondering if we are close to bottom or if the slide will continue into the foreseeable future. As if the housing market needed some external forces to apply pressure and make matters worse, we are approaching $4 a gallon gasoline. Not that the price of gas has a direct influence on home sales, but what it does have is a psychological effect. What people think, how they react and how a situation is perceived can have far reaching consequences, making the actual events seem much more ominous than they really are.

Take interest rates for example. Recently rates were in the neighborhood of 5.5%. However many of the sites I read written by mortgage brokers were advising people to lock in their rate. That same rate in a couple of weeks had shot up to 6%. In terms of what it means to a mortgage payment on a $500,000 loan is about $150 a month. The reality is that if people start seeing interest rates increase, they don't run out and lock a rate, they wait. They wait until the rates come back down again.

Currently there is a tremendous amount of volatility in the economy. The stock market jumps up 100 points one day only to fall 250 points the next. The price of a barrel of oil has surpassed $100 a barrel. The dollar is at an all time low. Equity is disappearing from peoples primary and largest investment, their home.

Throw all of this at the consumer and you begin to understand why the housing market is in need of some good news. The psychological effect of the economy is weighing heavily on the American consumer and it does not appear that it will lift anytime soon.

The only element that can address the current situation is ...time. The housing market was in overdrive for about seven years with record appreciation many areas. The chances that the downturn will play out and correct itself within 12 months are very small. Many industry analysts do not see a correction coming before 2009. What may be bad news for sellers may also be good news for buyers.

The old axiom of when everyone else is selling is a good time to buy may be true.


Doug Willis is a California Real Estate Broker and also author of a Pasadena Real Estate Blog. He and his wife Deena own and operate a residential real estate company in Pasadena. The web site is http://www.SGVhomes.com and http://www.up2daterealestate.com

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