The crystal balls seem to be disappearing as we speak, but there are good reasons to believe that 1 year from now it could be a seller's market here in the upstate of South Carolina. A number of things need to happen, and some are already underway.
Hitting Bottom seems to have already occurred. Both unit sales and home values have increased over the same period of last year in the last 2 months. Yes, it takes time to stop a train and time to get it up to speed again.
New Construction has come to a halt. It's a combination of declining sales and the availability of financing for builders both large and small. Larger builders with existing inventories have lowered new home prices by 10%-15% in order to keep the cash flowing, which is their life blood. Without the cash infusion from lenders, builders are unable to start new homes, thus a reduction in new construction inventories.
Existing Home Sales are stable and homes that are positioned properly, and properly marketed, will sell in well below average days-on-market. Even though the average home price in our area has increased, some price ranges have taken a hit. In subdivisions where builders have dramatically lowered prices, home owners who purchased in the past 5 years have lost equity on their home and will find it difficult to sell their homes without taking a large loss on their investment.
Mortgage Rates are between 4%-5%, the best in years. These are 30 year fixed! No balloons or surprises down the road. Expectations are they will remain at or below this rate for 2009.
Here is what needs to happen to get back to a seller's market. Inventories have to drop and they are. As mentioned above, New Home Construction has come to a halt. Many existing home owners, unless they absolutely have to, will not put their homes on the market as they can't absorb the loss in equity. Combined, this will reduce inventory by 20%-40%. But that alone will not do the trick.
Foreclosure and Short Sale inventories must also be reduced. These homes are adding to inventories and at the same time they are having a negative impact on home prices. There needs to be incentives for investors to purchase these homes, restore them and turn them to rental properties. Two good reasons this should be done. First, as lenders have more stringent credit requirements for purchasing a home, fewer home buyers will qualify. The result is more renters hit the market and the demand for rental homes increases. This would help meet this demand. Second, by reducing the number of available homes for sale you would stabilize and stimulate the market all at the same time. Getting funding for these investors to purchase and fix-up these properties is essential. Reducing or eliminating Capital Gains Tax if they rent these homes for, say 5 years, would take the homes off the market and reduce inventories. It's a Win-Win proposal and our leaders should be listening.
And here is why it makes sense! In order to have a seller's market you need more qualified buyers than homes for sale. Lower interest rates will bring more buyers. Inventories of New Construction Homes are falling and will not be able to meet this future demand. Existing home owners don't have enough equity, thus reducing resale inventories. Foreclosures converted to rentals take these homes off the resale market. The overall result, fewer existing homes on the market and more buyers,
A Seller's Market!!