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news updated: 10/30/2007 |
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A Buyer's Market That No One Wants To Buy? |
Article Details |
The balance between the supply and the demand in the real estate market is relatively inflexible. While the swings are emphasized from one extreme to the other, the markets in the recent years have been experiencing slow waves. Now, the market is in a "buy low" trend. Still, are there people buying?
Before we get to any discussion about the real estate market, let us first define the terms.
A buyer's market condition is defined as an oversupply or abundance of goods in the market. With more homes for sale relative to demand, the home buyer is given more options at usually lower price pressures. The buyer is given the luxury to review and be more selective in purchasing contracts as there are a lot of home owners on the table.
When the housing industry as reflected by the mortgage markets becomes a buyer's market, then more buyers are willing to take advantage of the lower price before the increased demand increases the price pressure.
A seller's market in the real estate business contends a shortage of houses for sale. This puts price pressures up and allowing home sellers more leeway in selecting the best buyer while demanding a relatively higher price.
As exact opposites, the buyer's market and the seller's market are mortgage trending that represents both sides of a balance beam. Both forces reach a steady equilibrium while the momentum shifts from one side to another.
This dynamic is different in nature as compared to investor decisions in a stock market. Stock investors take the fluctuations as risk and opportunities in the short term to the medium term. In stock trading, what is most important is getting a nice gain in the long run despite the volatility. Therefore, a mess-up can easily be bought up or fixed.
However, the real estate market is much slower and more concrete. Real estate investors and home loan buyers cannot afford a slip-up in their investments as they cannot bail out on such a large asset. While the pendulum swings slower, investors just can't bail out of the market easily.
There are a number of indicators that suggests a buyer's market. First, prices are flattening. Sales from July last year is down by 40% which is representing a slowdown in transactions. At the same time, resale inventory is neither increasing nor decreasing with an average selling period even for hot properties are reaching more than 60 days.
As we can see more sellers aren't finding enough buyers.
With this realization, sellers have to sweeten the deal to make their house sale more feasible in addition to prices generally going down five to ten percent below the asking price. This considerable price pressure will allow buyers to save more than $180 a month on a 30 year fixed rate mortgage from a starting price of $300,000. Sellers are also willing to help out close out the deals by subsidizing transaction fees.
While it is clear that it is a buyer's market, a certain threshold has to be managed to encourage buyers to pick up these opportunities. However, the weakness in the market showed that the buyers themselves are on the fence or generally discouraged because of the country's economic outlook.
To wit, buyers do not have a sense when the downward spiral will start to recover. This could be a dangerous situation for the market as buyers are shying away from deals and sellers just cannot encourage buyers because of more uncontrollable factors.
A spiraling real estate market is not the case three years ago. The market hold a seller's advantage as home prices increases were increasing in 2005 before flattening in 2006. As the slow pendulum analogy suggests, the market expected a nice and gentle landing of prices. However, the price decrease in 2007 juggled the real estate market after the slide of the credit markets. People started to default on their loans which snowballed on the U.S. housing loans. Thus, the once healthy seller's market was clamped downed by decreased buying rates.
Where does the market go from here?
As it stands, there are reasons to justify that the market won't pick up just yet. Loan buyers would need a little more help not to shy away and we have to expect that the credit companies will make the necessary market corrections. After that, it is all up in the air as the storm is not over.
Delinquency rates are still rising and prices are continuing to fall with predictors suggesting that people would have to wait till 2009 for the prices peak up. Until then, the market for mortgages will be a buyer's market that no one wants to buy.
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