Home Buyers Looking For Lower Prices

Urgency created by the federal home buyer tax credit is gone

, and home buyers are now looking for lower prices.

Even though mortgage rates remain low, the volume of new mortgage applications has dropped. The Mortgage Bankers Association is reporting that applications for loans to buy homes have substantially decreased.

With no incentives such as a tax credit to influence a buying decision, home buyers are taking their time and being more selective. There seems to be a general expectation that many home sellers are desperate to sell, and will settle for a lower price.

If home sellers are not forced to sell, they tend to think their home is worth top dollar. Even if they wanted to, many home sellers cannot consider a low offer because they don't have enough equity to cover all the costs of selling the home and moving. If sellers are not able sell for a sufficient price, they may have to negotiate a short sale with the lender.

The contrast in perceptions is a primary cause for collapsed transactions. Estimates of 15 to 17 percent of sale transactions in some areas are falling apart as sellers prove unable or unwilling to give buyers what they want. In a normal market, the figure is about 5 percent.

Real estate buyers are holding out for a bargain, and they can't be blamed for wanting the best deal. The perception for sellers may have been influenced by the increase in demand caused by the federal tax credit. It may take some time for reality to set in that a recent boost in home prices was only temporary, and sustainable gains need to be supported by real job growth and sufficient household income

Over time, the housing market naturally makes price corrections based on supply and demand. Unless job growth quickly improves, government incentives that were meant to support home sales, may have just delayed the inevitable price corrections.

by: Rick Smith.

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