The news media continues to comment on the superficial state of the real estate market. The local ABC news last night talked about the difference between the real estate crises in Antioch and the continued health of the Alamo real estate market. Of course there are differences, but eventually the market forces must reach out to all levels of real estate. The only question is how far the correction will go and when it will end.
The primary reason that the Antioch is in crises is because of the home prices. This is an area where prices are low. Where people thought that if they could just get that 100% financing, at any cost, they would be set for life. They wanted in on the gold rush. Heck, they missed the stock market run up. They weren’t going to miss this one!
They wanted a home. The same kind their friends had bought. One that would appreciate so fast that they could move to a better home in just a couple of years. And with interest rates so low, if they decided to stay in the home longer, they’d never have to pay the adjusted mortgage rate. They’d just refinance. No problem.
Well, that all changed. The sub prime market crashed. Buyers went away. And owners with little or no equity are trying to get out of a bad deal. They lost on the gold rush. And now they can’t even get out of the deal without ruining their credit and their finances.
So the Antioch market drops. People have no choice but to try to sell. Even though in many cases it is hopeless. (Read as: Real estate agents burning time, energy and money on homes that aren’t going to sell. Not without a cooperative bank and a massive amount of effort on the agent’s part.)
But Alamo continues to increase in price. The only thing that’s change is the number of days it takes a home to sell. Isn’t this the first harbinger of bad times? An increase in the days on market. However, the price of homes continues to rise. This is the stubborn seller syndrome. The seller believes that he still deserves more than the guy who sold down the street last year. Even with longer selling time.
As long as the number of sellers in Alamo stay low. As long as none of these owners used sub prime financing and are in over their heads. As long as the inventory on the market stays moderately stable. As long as real estate agents keep believing that the Alamo market can’t be touched. Alamo may make it through this correction without much of a problem.
However, if the $400,000 homeowner can’t sell his home for a profit, then he can’t buy the $600,000 home. If the $600,000 can’t sell at a profit, he can’t get his $800,000 dream home. And if the $800,000 guy can’t sell at a profit, the million-dollar mansion is out. Unless buyers fill these stepping-stones, eventually the million plus homes will also see a lack of buyers, and, in all probability, a price correction.
In many areas, the first time buyers are still waiting. Some are coming back. Some are willing to take the risk that the bottom is over or is just about here. Until the inventory of homes on the market goes down to a more normal level, there is still room for softening of the real estate market. And at the bottom end of the market, the inventory is huge.
© 2007 by Judy Kane
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