Buyers Market!

All we hear on the news today is that the market has made a quick change from a sellers market to a buyers market. But what does that exactly mean, and what does that mean for our customers/borrowers?

Well for the past few years, property values have been rising. Combine that with low interest rates, and it creates a growing market. This has given a lot of developers and builders more opportunity to create more product (more homes) in the growing marketplace. Different areas of the country have varying degrees, but in Mid Mo, we are seeing a lot of builders that have been continuing to build, build, build in order to maintain a line of credit. But builders can't keep building forever unless those homes sell.

As the saying goes, "a house is only worth what someone is willing to pay". Sure, you can get appraisals to determine a market value. But ultimately, the home is only worth what someone is willing to pay for it. So, when rising property values price a majority of buyers out of the market, and inventory (homes) continues to increase, it creates a surplus of homes. If you can remember back to your first "Econ" lesson. . .what happens when there is too much supply and too little demand? Prices fall. Long story short, we should expect some builders to either reduce their prices or create more incentives to sell their existing homes. Look for things like "Free UpGrades", Seller Paid Closing Costs", "Free Homeowners Association", Etc. I've even seen some builders throw in Plasma TV's and moving trucks. But in the simplest terms. . .Builders will make several different concessions in order to sell these homes. Hence, a Buyers Market.

Another area to consider. . . current homeowners. Some of these homeowners took advantage of the low interest rates of the recent past to purchase new homes or refinance their existing. Some of these homeowners used Adjustable Rate Mortgages (ARM's) which had low rates locked for the first 3, 5, or 7 years of the loan. The problem is that those ARM's are getting ready to adjust and in some cases can adjust as much as 2.0%. Example: taking a payment of $1265.00 up to $1540.00. In some cases, this prices that homeowner out of their own home. That homeowner will either have to refinance again, in hopes of getting a lower rate (which are still available) or absorb that increase. Some may even decide to sell their home and downsize into something more affordable. These are the people who will take a hit. Because, not only are they competing with builders and existing inventory, but more than likely, the value of that home may have decreased due to the surplus of housing. In extreme cases, they may even owe more on their home then they can sell it for.

I know this post may seem lengthy, but it certainly deserves some attention. Most Real Estate Professionals are creating ways to counteract this trend or their working to produce programs to ride the buyers wave. What ideas have you seen? Your comments are welcomed.