Aug. 26, 2010 - A home near me sat vacant for almost two years, but now a young family with two toddlers has moved in. First-time buyers, they were able to purchase for a price deeply discounted over the home's first listing price in 2008.
A co-worker and her husband searched for the perfect home for almost a year, then found an even more perfect home at a fire-sale price. They haggled some more and brought the price down further and now they are the proud owners of a contract that will turn into their first home in another month. In her mind her little family already is moved in. She knows exactly where the Christmas tree will go.
Something is changing. A slight breeze is blowing in. New families arrive, babies in tow. A neglected lawn gets mowed again, new curtains show up in the condo across the street.
This month's real estate news is grim - sales are down; prices are static. But maybe this is what the other side of the "U" or "V" looks like. That's the shape made on graph paper by home sales, prices, and just about every other measure of real estate during the Great Recession. Some charts do look like V's as we hit a sharp bottom on some indicators a few months ago.
But Jim Merrion, regional director at Re/Max Northern Illinois, calls it a U, since he sees the bottom as wide and flat as we bump along, but he expects prices and sales to rise again to form the right side of the U. Let's hope he is right and we aren't drawing an L.
"Prices are parked until next year," he said. "It's unrealistic to expect that we will see any price appreciation through the end of the year. Then we are looking for an improvement next year. It's not going to be a V-curve. It's a gradual U. It's not going to be gangbusters."
It's kind of like getting over a virus. You're not so sick any more, and you should go back to work, but you're too weak to make a decision. You decide to lie on the couch and think it over.
Even for those who are not buying a property this year, prices and sales matter, since they are the gasoline in the engine of our economy. The average home buyer, Merrion notes, spends at least 5 percent of their purchase price on home improvements during their first year of ownership. A home selling at $300,000 spins out another $15,000 into the economy that year.
Anecdotally, he says, sideline real estate investors are tiptoeing back into the market, and professionals are getting a little more active. Sideliners are those who may be newbies, or who just buy when they see a great opportunity. But both sideline investors and professionals are being lured by the record low interest rates on mortgages as well as low prices.
"Investors," he says, "are like art galleries. They wait until prices are at or near bottom. Investors will never pay top dollar."
Since the tax credit has essentially expired (those with contracts have until Sept. 30 to close, but it's too late to sign a contract and get a tax credit), the number of sales predictably have slowed this summer. Homes that are closing, Merrion noted, are closing faster. Around the metro area, homes are selling a full month faster than they were last year and are on market an average of 147 days, compared to 174 days last July.
That is likely due to the fact that buyers are aware they also are in the bottom of a mortgage rate "U" where historically low mortgage rates are not expected to stay. But BankRate.com suggests nobody really knows what to predict for rates.
Bankrate.com writer Holden Lewis writes, "Often experts can guess fairly accurately whether rates will be higher or lower in three months. This year, no one has been right."
Who knows? Maybe rates will stay low, creating an L, and sales will go up, creating a U.
