Its been close to 2 weeks since I last posted — and usually I have some opinion on something every couple of days. The last few weeks, though, I’ve just been trying to figure out what’s going on. Which has basically been nothing. August is typically a slower month here, contrary to popular opinion. A lot of folks go on vacation the first couple of weeks, and then get into "end of summer, get the kids ready for school mode" the last couple of weeks. But this year, August was dreadfully slow. I had some appointments every weekend, and one weekend in August was booked back-to-back. But I didn’t put one deal together all month. People came, looked, and decided to wait – for either a better property to come on the market, or for more confidence in where the market is going.
This August was actually a lot like last year. In July/August 2006, the news media was filled with doom and gloom reports about the slowing housing market. This year, every where you turned was another report about the mortgage collapse, along with the obligatory reports about housing sales and prices down nationwide. You can’t ignore the fact that it’s had an impact on buyer psychology. The overriding impression that buyers have is that real estate is bad, and its better to wait for the inevitable bargains coming down the pike.
Unfortunately, most buyers aren’t really digging into the data, instead only filing away the sound bites. The real estate market is awful in the overheated markets like California, and the overheated/overbuilt markets like Las Vegas, Arizona and Florida. Economists are predicting a 16% drop in prices in California, where the boom was fueled by risky adjustable mortgages. And Florida isn’t far behind.
But the northeast is showing much more stability. According to data from the National Association of Realtors, July sales were down in the west 15.2% year over year (with prices relatively flat), while in the Northeast year-over-year sales only showed a 2.9% drop and prices were actually up 5.9% year over year. Price declines in the south and midwest were the culprits that led to the headlines shouting "Home prices drop".
The mortgage "crisis" is certainly going to have an impact in the Northeast. I predict we’re going to see a real softening in the upper end, as the ‘spread’ in mortgage rates between conventional/conforming mortgages (under $417,000) and "jumbo" mortgages increases. (The spread was grown from 25 to 35 basis points pre-July to 75 to 100 basis points today.)
Overall, in the near to mid term, we may seem some price declines from the peaks reached earlier this year. Many real estate economists that I check out seem to think price declines will be in the low single digits in New York state, compared to the double digit declines in many Sunbelt and western locales. Many buyers, however, seem to be waiting for a market collapse akin to Linux and telecom stocks at the height of the dot-com boom, where a lakefront house that may sell for $500,000 today will be bargain priced at $300,000 in 6 or 9 months.
I just don’t see that happening. But there is a silver lining to all of this. Sellers are seeing and reading the same news reports. Hopefully, a lot of them will become more realistic about their expectations in the next few months. In the meantime, I think we may have a chilly fall while buyers wait and see what happens in the real estate market, and sellers adjust to the current reality.