Market Areas Differ Greatly

Despite national headlines pounding out news of a housing market meltdown, all markets are not even remotely equal. In the NAR’s latest price survey, almost half of the country experienced price increases. Upstate New York for example is an area where home prices in the final quarter of 2007 raised an average of 9%, Binghamton, Alabama 15%. The Texas market has been strong with price gains averaging 7%. Some place showed decreases. Price declines are occurring and are quite notably in some coastal states and in markets with a high prevalence of sub-prime loans. Prices fell 13% in Cape Coral, 14% in Detroit, and 19% in Sacramento.

Variations in each Market

The data clearly shows significant variations across markets. As real estate practitioners know very well, there are further measurable differences across neighborhoods within similar markets. No doubt there are some people under great financial stress. Sub-prime products that should never have entered the marketplace have wreaked havoc on many communities around the country. Homeowners unable to meet payments are losing their homes and falling home values have cut the equity of those homeowners who make their mortgage payments on time. Investors taking a walk may not feel the same financial squeeze but they are getting hit on credit scores; many investors using low documentation loans bought multiple properties and are now simply walking away from those properties in declining markets.

Skirting Recession

Concerning the economy, it will be close, but we will skirt recession. Job gains of around one million can be expected for all of 2008. Affordability will improve as well; NAR’s housing affordability index is expected to rise from 113 in 2007 to 129 in 2008. Job gains and rising affordability conditions are the right combination to induce buyers into the marketplace. But affordability could change in markets as more buyers start entering the market and price start a slow rise again. The current market cycle is unique because of significant local market variations. It is also unique because of buyer psychology factors, in spite of pent-up demand and improving affordability conditions. Home sales in the second half of 2008 will be notably higher than in the first half of the year.

To quote Warren Buffet’s investment philosophy: when everyone is greedy, be scared; and when everyone is scared, be brave. If people have the financial capacity and are looking for a home for the long haul, the fear factor should be put aside. Current situations in many local markets present a golden opportunity in attaining the American Dream with historically low interest rates.

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