Real Estate Bouncing Back, But Won’t Return to Glory Years

What’s the status of a post-bubble, post-correction real estate market? More importantly: What does that mean for you in the new year?

That’s the question of the day - or the year, so far anyway - and posed by syndicated columnist Kenneth Harney in today’s Baltimore Sun.

Those questions are becoming increasingly relevant as the latest sales data show a small but unmistakable increase in activity and declining inventory.

In December, the National Association of Realtors reported that existing-home sales were up a bit in November - 0.6 percent - the second straight month of modest increases off the cyclical trough in September.

On December 27 the Commerce Department reported sales of new houses rose 3.4 percent over the prior month, while home builders‘ unsold inventory dropped to the lowest level since February.

All of which suggests the 18-month market correction that followed the four-year housing boom has just about run its course. Nationally, we’re nearing safe ground - but no one’s looking for a return to the glory days anytime soon.

Some local markets are moving contrary to the flat national trend. Three dozen metropolitan areas - primarily markets with modest prices (where mortgage loans are cheaper) and solid employment growth - were racking up low double-digit price growth at the end of the third quarter of 2006.

Dozens of other areas - primarily where unemployment has been a persistent and increasing economic drag - showed continued signs of modest depreciation in home values.

In the mainstream, however, the housing market appears to have weathered the correction phase of the cycle without the anarchy and blood running through the streets that some bubble-bursting bears forecast.

Median prices of existing houses have fallen 3.6 percent nationally year-to-year, and anecdotal reports of 10-20 percent asking price reductions in formerly hyper-inflated markets are commonplace. But that’s what corrections are all about, as opposed to outright busts.

Moderate price cuts also eventually stimulate buyers - who’d been sitting on the sidelines wondering when the market might bottom out - to wade back in and start shopping for home mortgages again.

That’s where we appear to be at the moment, and where we’re headed in 2007, absent unexpected economic jolts to the global capital markets that could send mortgage rates spiking. In that event, all bets are off.

So what are smart strategies in a slowly recovering real estate environment for heads-up buyers and sellers?

• Think baby steps instead of big leaps. Sellers shouldn’t assume that with the trend turning positive they can suddenly price their house for what they might have commanded in early 2005. In most places, buyers have the upper hand, so setting a realistic price is paramount.
• If you’re one of the many first-time buyers out there, recognize that the game is changing, the spring buying season is just on the horizon, and that lobbing lowball offers at already marked-down properties isn’t a winning strategy.
• Be prepared to pay a price that may not be as low as you’d hoped, but that just might be your last shot at a particular house before it sells for closer to the asking price a few weeks from now.

Shoppers also need to understand that today’s prevailing mortgage rates - a little above 6 percent for 30-year money, and the high-5 percent range for a 15-year home loan - are less than a point above 40-year lows.

Those kind of deals won’t be around indefinitely, so a fairly priced house combined with a near-historic cheap mortgage adds up to a potentially great deal. Above all smart buyers and sellers need to be well-informed.