Consumer Confidence and Real Estate

Real estate sales have always tied closely to the index of consumer confidence.  Buyers' attitudes toward spending in general matter as much as interest rates to our level of sales.  The index has been going up most of the time over the past couple of years, rising even before we noticed an uptick.

Now, although the real estate market is much improved, the consumer confidence index is wobbling.  The past couple of months have seen declines, and, although we aren't seeing its effects directly, we know that the market recovery has always been shaky.  Every change in the stock market or mortgage policy makes us nervous.  We cannot count yet on the rising tide to carry us back to a strong sales climate.

We certainly can keep our fingers crossed that the recent dip is just that--a dip.  Also, it seems as though our improvement has come disproportionately from first-time buyers, who might be less inclined by age (they can't remember past downturns), life status (they are in the peak years of household formation), and risk profile (they tend to be less conservative), to worry quite as much about statistics.  Let's hope so.

First-time Buyers

There are lots of first-time buyers in the market now, and they are driving the action.  It's clear that it's harder to get a mortgage now than it was when those of us who are older bought our first homes, and the qualification standards are stiffer, even though rates are lower.

Because they are buying for the first time, they are often more hesitant to buy in situations where they might not feel comfortable.  Therefore, they often request more in the way of repairs, tests, and allowances for improvements.  In addition, having buyers ask for contributions to closing costs is a trend that we have seen in increasing numbers.  Sellers should not be insulted, since first-time buyers have no history, so no way of knowing that such a proposition might seem aggressive.

Since beginning buyers often look at more options, open houses have been very popular.  There may also be more repeat showings, with relatives and friends coming to weigh in on the potential purchase.  The closing can take longer as well, since documentation requests may be unfamiliar and take more time to fulfill.

Whatever the downsides, there is a great upside:  They are very motivated to buy and own their own homes, and they are out there!

January Contracts Up

Today's papers cite that national sales figures have risen in January, pushing the index used for measuring the health of the market to 97.  The number used for a balanced market is 100, so we can see that things are not only getting better, but that they are approaching "normal".  We need to remember that what we had in the middle of the last decade would be considered abnormally good, so there shouldn't be expectations that we will return to that dynamic any time soon.  However, it is clear that there is pent-up demand out there, particularly from first-time buyers, and it is starting to seem likely that the momentum we are gaining will feed upon itself and lead to further upticks.

More spring weather, more home sales--what could be better??

Where Have All the Buyers Gone?

The national news, as well as area papers, are full of stories about the abrupt dropoff in housing sales for May. Everyone knew that this might happen when the tax credits expired, but the amount of the decline is still surprising to people. After all, many families did not qualify for the credits, which decreased as income increased. Also, although the second round of credits applied to repeat buyers, it was always aimed at first-time buyers. They bought, but probably mostly in the first round, from what we could see. Ordinarily, first-time buyers make up about 45% of the total market for sales. With the tax credit, that percentage had increased to 55%. Even though that means that we have moved 10% of the sales from the future into the present (now the past) with the help of tax credits, there is still almost half of the buying population unaccounted for in these numbers.

Where did they go? It seems that consumer confidence, once again, has reared its ugly head. All the news reports about job losses, retail sales, and the stock market have affected homebuyers negatively. While we knew that this could happen--it's some version of the double-dip theory--it still surprises those of us in real estate, to some extent.

Interest rates are very low. Housing prices are back down, in many cases, to where they were several years ago. Everyone knows that, even if you sell low, it doesn't matter, as long as you also buy low. Consumers have stayed out of the fray for most of the tumultuous recent past. So they should be out in force, and they're not.

One theory is that there's too much on the market, and therefore they have paralysis. Another is that they think prices will continue to decline. It is true that mortgages are harder to get. And, of course, it's summer--hot and humid weather tends to keep people from doing all but the essential tasks of life.

However, we're all watching with bated breath. The housing industry cannot afford a long layoff from sales, as we endured at the beginning of last year. Congress, take note!