We are all aware that the housing market is having a slow down, just by driving down the road. Houses are staying on the market much longer than they ever have, but what is the cause? Are we becoming more informed and choosy consumers? Well, though I hope this to be the case I doubt it is the reason for the markets sluggishness. More likely it has to do with the increase in bank foreclosures, the rise in interest in t he Adjustable Rate Mortgages, and the current popularity in property flipping. There is no one cause for the market slump and to blame one factor over another just serves to confuse an already confused populous. So what does each individually do to affect the market?
House flipping – This trend has been around for years, but not until recently has it become so popular. Savvy individuals buy houses in either well established or up and coming areas for far less than the property value. They then repair all major faults like leaky plumbing, holes in drywall, etc.. Most rehabbers will also make aesthetic changes to the property to draw in buyers, like updating the kitchens or bathrooms. A good flipper will stage the home prior to listing the property and selling it, hopefully making a profit on the property. Some flippers get in over their heads and end up loosing money, but most come out with a minimum of $50,000 in pure profit. The proliferation of flippers however have taken properties that could have been affordable for 1st time home buyers and made them to expensive, therefore limiting their resale market and causing an increase in the number of houses on the market at any given time.
Adjustable Rate Mortgages (ARM)/Teaser rates – ARM’s were designed to help 1st time home buyers afford to buy a home by giving them a low introductory interest rate. However this low rate doesn’t stick around forever and has forced many property owners into foreclosure when they can’t keep up with the rising prices year after year. The only people that make good use of these ARM rates are house flippers who don’t hold onto the property long enough for the rate to increase. Teaser rates have allowed banks and other lenders to entice would be home buyers into investing in a property, but have failed to properly inform them of the rate increases and what they will do to the mortgage holders monthly payments.
Over building – These are areas where builders have put in more houses than the market requires in the hopes that the demand will increase. In reality the only things these builders are doing is increasing traffic congestion and decreasing house prices in the area. Unfortunately this decrease in prices is still not reaching 1st time buyers. Instead builders are targeting individuals over 55 and with the help of state and local law makers, they are able to put more homes in a single area without any regard for the local road capacities. Why can they do that? Well, typically 55 and over means retirement age. The only flaw is that most individuals are not retiring until they are 60 and over these days, which means just as many people will be using the roads as any other development, except the roads are no longer designed to handle the traffic. The more traffic, the more homes on the market, the more homes on the market, the worse our housing market and the lower land values go, the lower land values the more developers…It’s a vicious cycle.
Job Market – Yes, the local job market can also have an impact on the housing market. The more jobs, the more people, the more people the more homes are needed. But not just any job will warrant an increase in the need for properties. You can add more teachers and a new school, but because teacher salaries are so low they will not be looking for new homes for several years. On the other hand you bring in a larger, more tech savvy company like Yahoo or Google and instantly require homes for the employees being relocated.
There are more reasons than this for the state of our housing market, including water rights, land rights, zoning laws, lot size restrictions, and more. Your best bet as a consumer or a real-estate professional is to stay informed. Keep up on the markets in your area and know what your looking for.
I encourage your comments and opinions. Create a community of thought.
Kristi
