Random Thoughts

The news is full of, ...well, news. Consider it data I suppose but what to make of it, and what does it portend? The National Mortgage Bankers Association reported that purchase mortgage applications were 26% below year previous for the same time period. Say what you will, that's a bunch. The California Association of Realtors reports that sales of existing homes are down from year previous rate, no surprise there, but also that median home values in the state are still rising, albeit at a lower rate than previously. Other data suggest that consumers are incurring debt at a slower pace than in previous periods. Unless you own a credit card company that could probably be construed as a good thing. As a mortgage broker I view debt reduction as a very good thing indeed. In the real world of real estate listings there is still a glut, and while price reductions are the order of the day, they lack real significance since they represent only a lowering of expectations of owners, not an actual reduction in value. Into the mix of information add the very stabilizing element of very favorable interest rates. As of today a 30 year fixed rate mortgage, 80% with good credit, is available for no more than 6.25% with zero points. Oil prices have dropped, at least for now. All in all both the economics and the psychology should be saying, "it's a good time to buy a home". So how come the market is slumping? Just an opinion on my part, but here goes. I think that because some of us think that owning our own nest is a great idea in and of itself we sell this notion as the American Dream and encourage everyone to buy into the notion. A lot of people who are only marginally persuaded that home ownership is the be all end all bought into the concept for economic reasons. They watched Bob and Carol and Ted and Alice reaping major rewards in rapidly rising equity and decided to join in the party, overcoming a possible aversion to the maintenance problems of home ownership and the risk of marginalizing their cash position in the interest of having a place to live that made them a lot of money besides. Now with values slowing in their rate of growth, and the perception that if that's possible a greater flattening is also possible, the specter of signing on for a long term commitment in excess of a quarter million dollars is daunting. Careful consideration will make the prudent person a little hesitant to take that plunge. If the view is you're going to have to make those mortgage payments from your income instead of constantly converting a growing equity into liquidity, maybe signing on for that debt load isn't such an exciting alternative to renting after all.
None of this is intended as a negative view of the market. In fact I think the market is strong, buyers have many choices, financing is available at good rates, and not surprisingly, homes that are appropriately priced are selling. When we list a property for sale the owner has tasked us with finding a person willing and capable of taking on debt in the quarter million to half million dollar range in order to buy their home. This is an exercise that requires time and marketing skill. The marketing skill we have, the time has to be granted us by the home owner. This is a time for patience. 120-180 days is not unrealistic in a normal real estate market to market and sell a home.