Stabilization and recovery, what does this mean for buyers?

Most buyers and sellers see the massive media onslaught and walk away with an incorrect perception of what is going on their local market. There is an old saying that you can't tell time by staring at the second hand. Much of the daily news is just that.

Most experts agree that we've emerged from the great recession, and that we ought to see a modest recovery over the next year or two. The reality is that market trends happen before the public is aware of them and we can only tell the market has bottomed once it's going back up. What does this really mean to a buyer or a seller?

Rule of thumb is that six months of inventory is the boundary between a seller's market and a buyer's market. In other words, if ten homes sell a month, and there are sixty homes available, then there is six months of inventory. If there are fifty homes available, then it's a seller's market, if there are seventy then it's a buyer's market.

The reality is that markets are local. It's hard to see this when hearing the media generalize nationally. There are certainly many communities that are sitting on years worth of inventory, however in the areas that I serve, the opposite is true. For the sweet spot of homes (three to four bedroom mid-priced homes), the inventory is fairly low, and there are multiple offers and there are bidding wars. In the higher end, the movement is not so robust.

Taking today's local stats, there are 35 active listings for three bedroom homes, and 67 active listings for five plus bedroom homes in one of my towns. During this period 8 three bedroom homes sold and 5 five plus bedroom homes sold (35/8 as oppose to 67/5). This simply tells us that for three bedroom homes there is just over four months worth of inventory, while for five plus bedroom homes there is a thirteen month inventory. It stands to reason that the higher priced homes would not sell robustly in the current climate, however we see a stark difference for three bedroom homes. if anyone thinks that three bedroom homes in this town with 38 average days on market is a buyer's dream, they need a reality check. Those homes are a seller's market.

For first time buyers, there are fewer homes to see, but the available homes are very well priced, coupled with near record low interest rates. When was the last time that interest rates and home prices were both low? Trick question. The answer is never. Let's take as an example a $400,000 mortgage and 5% interest for a 30 year conventional loan (has anyone had a reaction already? 5%!). Interest rates will likely go up so let's compare that to a year from now to an interest rate of 6% with our home having appreciated $10,000 more (a modest 2 1/2 percent increase). The monthly mortgage payment would be $310 less per month, and overseer the life of the loan, waiting a year would cost $111,000 more! A modest half a percentage point change in interest (say it goes to 5.5%), would still make that purchase $65K more!

Is this a cup is half full no matter what the media tell us? Reality is local, and while much of the market has been affected in predictable ways, not every market has. Make sure you speak to a superb realtor, who has access to all the information so you can make the best decision for you.