And the impact hasn't been good. Needless to say the real estate market was in the doldrums before the you know what hit the fan in October. Now the question that is being asked is "What effect is the crisis having?"
It's too early to measure the impact on prices, but there seems to have been a measurable impact on new contracts. For the year, closed sales of single family homes in Monmouth County have been running about 22% below the levels of last year and the October closings seem in line with that figure.
The new contracts are another thing. The single family homes reported under contract around the county this October is about 32% below the number reported in October 2007. There will be some contracts that will be reported in early November that will be counted for October, so that figure will come down some, but most likley it will change the number by only a couple of percentage points.
Why are new contracts important? New contracts are the best indicators of current activity in the real estate market. The closed sales reflect the sales activity that occured 45-90 days ago. So as we go forward, the new contracts for October will be reflected in the closing numbers for November, December and January.
What does all this mean? The Buyers' Market we find ourselves coping with is likely to continue well into next year, at least. It is hard to come up with a scenario, regardless of who wins the election, that the excess inventory will dry up and prices will firm up within the next 6 months.
If you are a seller, it's a race against time. You aren't going to like today's prices but you will probably like them a lot better than next year's prices. If you are a buyer, more and more good buys are popping up on the market. Yes, everyone wants to buy at the bottom, but only hindsight will tell you where that was. For anyone with a 5-10 year time horizon, now is a great time to buy.
Showing posts with label inventory. Show all posts
Showing posts with label inventory. Show all posts
Monday, November 3, 2008
Tuesday, October 7, 2008
Our Problem is a Demand, Not a Supply Problem
There has been a lot of discussion lately about what it will take to firm up the real estate market and put a bottom under the prices. Most of the discussion has been centered on the supply side of the market, with the talk centered on how to help people who are behind on their mortgages stay in their homes so those homes don't add to the supply in the market.
No doubt such an approach would take some homes off the market and prevent others from going on the market. However, foreclosed properties and those in pre-forclosure make up a relatively small precentage of all the homes currently for sale.
We do have too many homes for sale relative to the demand, but the fact remains that the number of single family homes listed for sale in Momouth County this year is about 10% less than last year for the same time period. In spite of this, the inventory levels are higher than last year.
Why is this the case? The number of homes being bought is declining at an even faster rate. Although the number of new listings has declined, the number of new sales has declined even more, resulting in an even greater oversupply in 2008.
What can we do to firm up the market? One is to let the market cycle run it's course. Ultimately prices will decline enough that "experts" who have the ability to influence large numbers of people will send out a "buy" signal which will bring people into the market. That approach will take care of things but will probably take a lot longer than most people wouldl like.
The other is to try to interrupt the normal business cycle. Helping people stay in their homes is an attempt to do that. So far, the results have been minimal. A better approach would be to stimulate demand. Right now, people are hesitant to purchase real estate because they see more risk than return. To stimulate demand, we would have to change that equation by creating an upside to purchasing where people don't currently see one.
How might that be done? The only thing that government can to stimulate demand is through incentives. What might they be? The only thing I can come up with are tax incentives for purchasing real estate. If the tax incentives were great enough, people would see enough upside to purchasing that the risk would be worth it. With sufficient incentives, demand would go up and the excess inventory would soon dry up and prices would find a floor. That is what everyone is says we need.
No doubt such an approach would take some homes off the market and prevent others from going on the market. However, foreclosed properties and those in pre-forclosure make up a relatively small precentage of all the homes currently for sale.
We do have too many homes for sale relative to the demand, but the fact remains that the number of single family homes listed for sale in Momouth County this year is about 10% less than last year for the same time period. In spite of this, the inventory levels are higher than last year.
Why is this the case? The number of homes being bought is declining at an even faster rate. Although the number of new listings has declined, the number of new sales has declined even more, resulting in an even greater oversupply in 2008.
What can we do to firm up the market? One is to let the market cycle run it's course. Ultimately prices will decline enough that "experts" who have the ability to influence large numbers of people will send out a "buy" signal which will bring people into the market. That approach will take care of things but will probably take a lot longer than most people wouldl like.
The other is to try to interrupt the normal business cycle. Helping people stay in their homes is an attempt to do that. So far, the results have been minimal. A better approach would be to stimulate demand. Right now, people are hesitant to purchase real estate because they see more risk than return. To stimulate demand, we would have to change that equation by creating an upside to purchasing where people don't currently see one.
How might that be done? The only thing that government can to stimulate demand is through incentives. What might they be? The only thing I can come up with are tax incentives for purchasing real estate. If the tax incentives were great enough, people would see enough upside to purchasing that the risk would be worth it. With sufficient incentives, demand would go up and the excess inventory would soon dry up and prices would find a floor. That is what everyone is says we need.
Subscribe to:
Posts (Atom)
Posts
