“WHERE ARE PRICES HEADED”

COLDWELL BANKER TOWN & COUNTRY

BLOG FOR 23 FEBUARY 2010

“WHERE ARE PRICES HEADED”

Those who follow the Standard and Poor’s Case-Shiller index know that home prices have been inching up “here and there” across the country.  This was true through November, but the Case-Shiller summary for December (the most recent at this writing) shows price increases stalling in that month.  While that is probably a reflection of the slowing in first-time buyers prior to the reintroduction of the $8,000 tax credit, there are other price-effecting factors that will be at play in the coming months:

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  • first will be the end of tax credits (30 April 2010);
  • second is what is to come in the short payoff/foreclosure arena;
  • finally, and this is the wild card, the inevitable rise in interest rates.

The so-called “phantom inventory” of homes that are so far in delinquency that loan restructuring will not prevent foreclosure or short payoff number somewhere above four million and could be twice that figure if prices continue to decline. It is argued that these homes, however belatedly brought to the market place by forced short sale or foreclosure, will have the effect of lowing prices still further.

We take a somewhat different view: the lack of marketable inventory in Southern California between last October and now (the final week of February) has resulted in a number of properties receiving as many as fifty legitimate offers; homes receiving ten or more offers number in the hundreds.  The buyers who have made these offers remain “hungry”, though discouraged.  Even absent the $8,000 tax credit after the first of May, they will be there ready to buy!

So here’s our best outlook (no promises ever, of course):

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  • first, the Congress is very unlikely to extend any further tax credits
  • second, three or four months after the predicted January “opening of the faucet” on foreclosures, they will at last begin to trickle into the marketplace;
  • finally, while interest rates must inevitably “trickle up”, it seems very unlikely that it will be at a more than moderate rate.

The effect will be to increase short payoff inventory (caused by pressure from those long overdue Notices of Default from the lenders) as well as bank-owned inventory, but that increase will also to induce discouraged buyers back into the market.

So:

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  • For the anxious buyer who has made six or eight or a dozen offers only to get beaten out by a higher bid, take heart.  Help is truly on the way, it’s just coming more slowly than we all thought. 
  • And for the seller who does have equity and must move on, prices should hold in a fairly stable range during the Spring and Summer.