Everywhere we go people ask us the same question, “how are things in real estate?” Depending on our energy level at that point in time, our answer might take 10 seconds, or 10 minutes. Sometimes people ask because they are truly interested from a personal standpoint. Sometimes it’s too find out if we are suffering as much as the media says we should be. Sometimes I think folks want to know what Kind of person I am i.e., will I simply throw out a lot of optimistic BS, or am I real and will actually think about how to honestly respond.
After much reflection on our position and experience in the current market, combined with discussions with other agents and brokers that I highly respect, I have come to the following conclusions:
1. There is a current oversupply of new homes. These homes will be discounted and sold by the builders over the next 6 to 10 months.
2. The same builders will generally not be allowed by their respective lenders to start new homes until their current completed standing inventory is sold off as stated in number “1” above.
3. These same builders that used to get the green light from their lender(s) to start 10 homes at a time will be limited to 3 starts at a time for the foreseeable future. Successive home starts will be dictated by closed sales e.g., “you may start 3 now, but you have to finish and close one sale before you will be financed to start a 4th home.” It used to be that a builder could start a new home as soon as a buyer put down earnest money on an incomplete home (pre-sale). I don’t think it’s going to work like that any more, at least for some time.
4. Due to the foregoing, the supply of new homes will be consumed, and the rate of re-supply constricted, within 12 to 18 months.
5. Builders will have to work hard to keep their vacant lots looking like a happy place with fencing, landscaping, etc., and not looking like abandoned developments.
6. The change in new home supply will have a direct effect, albeit slightly delayed, on the resale home market. It will take 18 to 24 months for upward price pressures to reappear in the resale market, but it will come back……..just about the same time the mortgage industry will have healed from recent and current problems.
7. When asked the question, “how far will the market drop?”, my reply is November, 2006. Appreciation could be readily justified to that point, not beyond. Some folks maybe got a little more than they should have for their home in the first half of 2007, and some maybe paid a little more than they should have. But the difference is no more than will be readily absorbed and smoothed out over the next 5 years.
Thant’s my story and I’m sticking to it……at least for now.
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