| 04 August 2010
Those real estate soothsayers were correct. There has been a rather precipitous fall in sales activity since the expiration of the deadline for the federal tax credit on April 30. The Twin Cities market was off by 38.2% in June compared to June of 2009. And, yes, it appears that the pundits were right in suggesting that the tax credit stimulus merely “sold forward” buyers who would otherwise have purchased over the summer, resulting in a negligible net gain in sales for 2010.
“So, what’s the good news?” you may ask. Well, mortgage interest rates are amazingly low now. One positive consequence of this is that many existing adjustable rate mortgages are adjusting sharply downward, to record levels this summer, an involuntary, automatic “mortgage modification program” for many beleaguered borrowers, accomplished without government cajoling, providing welcome stability and affordability to the market.
On the price front, if this is not the capitulation point for real estate prices, it can’t be far away. Statistics indicating modest price gains in June probably reflect a shift in the mix of properties being purchased rather than a real gain in average value. There are fewer properties available at the very bottom of the price spectrum. Sales of distressed properties, foreclosures and short sales, as a percentage of overall closed sales, are 20% fewer than at this time last year.
For homebuyers and “buy and hold” investors, this is an historic opportunity to purchase near the bottom of a real estate cycle unprecedented since WW II, at prices that make sellers and their Realtors wince. One important caveat: the provident time horizon for resale is five to ten years; the market turnaround will most likely be slow and gradual. Buy property based on its current economic viability, for its current utility and/or enjoyment (stop watching those fictional flipping shows on TV!).
Nevertheless, home ownership for its own sake makes more sense today than it has for a very long time. Arguably, buyers can now save more than was gained by receipt of the federal tax credit through a combination of lower interest rates and softer home prices. This summer’s real estate doldrums, for those who shop carefully and act prudently, will be remembered in the future with thanksgiving.
Jim Tice is General Manager of CENTURY 21 Luger Realty in Edina. He has been a real estate consultant for 33 years- This e-mail address is being protected from spambots. You need JavaScript enabled to view it - 952-925-3901.