Reasons For The Market Shift

(Everyone knows that the U.S. housing market has drastically shifted in the buyer’s favor in what seems like overnight. But what isn’t as well known is why.)

For the first half of the decade (2000 to 2005) the real estate and housing market experienced the infamous “boom,” which made investors rich and young home buyers look like the smartest business people in the world. It was also the time when exotic mortgages began to flourish, which meant that just about anyone with decent credit could buy a house. No money down became no problem.

So then why, with these mortgage options still available, has the housing market done a 180 degree turn? Now, instead of buyers attending lotteries just for the chance to overpay for a house, sellers are giving away a year’s mortgage or the keys to their BMW just to generate a sale.

The article, “Buyers in the Driver’s Seat: Survey Results Pinpoint Housing Market Turnaround,” posted December 1, 2006 on rismedia.com lists the key factors that have lead to this radical change in the industry.

“To discover what happened -- and when -- one has to only review the last nine ‘Current Market Conditions’ quarterly national surveys conducted by HouseHunt, Inc., a consumer-oriented Internet firm that supplies free information and services to homeowners, home buyers and home sellers.”

The survey analyzes critical components of the housing market that ultimately all explain why the housing market is in the shape it is today.

The first component analyzes the time it takes from a home to be listed to when the sales contract on it becomes official.

“In the third period of 2004, three out of four homes were selling in less than 60 days—and 51% of those were selling in less than 30 days. A major change occurred in the first quarter of this year, when only 45% of homes sold in less than 60 days. This ratio widened this fall. Currently, only 26% of homes sell in less than 60 days.”

Next is the buyer-seller ratio. Again, during the third quarter of 2004, buyers outnumbered sellers by a 32 percent margin. There are now 16 percent more sellers than buyers in the U. S.

The third category that is analyzed by the survey is the inventory of unsold homes.

“This category has been steadily growing since the first quarter of 2005, when 36% of member agents reported a ‘good supply’ of unsold homes as opposed to a ‘limited supply.’ This estimate increased dramatically to 81% in the first quarter of this year and current stands at 89%. This inventory includes both existing and new homes.”

As sales have dropped to record-low declines in many regions across the country, the large amount of unsold inventories has created problems for builders who have to stop construction on many new developments.Perhaps the most scrutinized aspect of the market is the sales price versus the asking price.

Back in that third quarter of 2004, about 90 percent of sellers said they were receiving more than 95 percent of their asking prices, while many reported receiving over 100 percent of their asking price. Now, in the third quarter of 2006, only 51 percent of sellers claimed to be receiving 95 to 100 percent of their asking price.

It appears that all these factors coincide with each other in one way or another. Once one of these factors begin to tilt the opposite direction again, perhaps others will follow and the market will once again favor the seller and investor.

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