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The Post Tax Credit Housing Market (Part 3)

How will home prices be impacted?

The tax credit and most other government programs aimed at stimulating the housing industry have expired. Real estate is now on its own two feet and stepping into the second half of 2010. It appears that demand has fallen off a bit since the expiration of the tax credit at the end of April. Part of this pause probably is the result of industry professionals (realtors, mortgage lenders, attorneys, etc.) trying to close the surge of transactions by the June deadline. Demand probably will resurface and remain stable through the rest of the year. How will that impact prices?

We believe very strongly that the sale or purchase of a home has a strong emotional component. We realize your family has built their memories in the house you are about to sell. We understand that the purchase of this home will enable your children to have a better life growing up. Those emotions are important and should always be respected.

We also realize that there is the business side of selling/buying a home. That is setting the price. There is little room for emotion while establishing a home’s monetary value. This is a time for business concepts to take center stage. It is for this reason that we always consider supply and demand when setting prices. This is a universal concept that applies to any item being sold. Value is determined by how many like items are being sold and how many people want to buy them.

It has been established that, at best, demand will remain stable throughout the rest of the year. What about supply? It already is beginning to surge and will continue to do so for the next six months at least.

Supply is being affected by two variables: pent -up selling demand and distressed properties (foreclosures and short sales). Let’s take a look at both:

Pent-Up Selling Demand

Over the last two years there were a number of homeowners who wanted to sell their homes for a myriad of reasons. The market did not look appealing so a certain percentage delayed their sale waiting for a more opportune time. Headlines are reporting a surge in sales in the first half of the year. Some homeowners have decided that now is that time to sell. How many? Potentially millions.

Zillow surveyed homeowners across the country and asked:

“If you saw signs of a real estate market turnaround in the next 12 months, how likely would you be to put your home up for sale?”

Below is a graph showing the millions of homeowners in each category:

 

5.2 million homes sold in this country last year.

Distressed Properties

We all know that the current economy is wrecking havoc on the personal finances of millions of people. Some can no longer afford to pay their mortgage. That has led to a tidal wave of distressed properties coming to the market. Several studies have been done to try and quantify the number. Here are the findings of the top four studies:

 

Not all of these properties will come to the market this year. But, many will.

Again, 5.2 million homes sold in this country last year.

Between the two categories, several million homes will enter the market this year. Many will have discounted prices.

CONCLUSION: If we look at it unemotionally, demand will remain stable, supply will skyrocket and prices will soften.


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