Real Estate Market Mixed Signals

Expect mixed signals and uncertainty to continue through 2011

. Although strong price corrections have already occurred, the real estate market may not yet have hit bottom. Home prices and mortgage rates are expected to remain low throughout 2011. A lot depends on the job sector. The unemployed don't buy homes.

A few years ago, a booming market was a seller's market. Buyers were plentiful, the competition driving home prices upward. This led to speculators buying homes for the sole purpose of selling them six to twelve months later to make a tidy profit, further driving home prices upward. As long as the country had a dynamic economy, it was possible for homeowners to buy and prosper. It seemed like everyone was getting their share of the American dream.

As housing prices collapsed, followed by a deep recession, unemployment topped out at 12.5%. Housing depreciated by 40% to 50% as the rate of foreclosures soared. Residents who bought before the crash saw their equity disappear.

Now for the good news. Home sales are on the rise. Inventory is still high. Strong price corrections have already occurred. February 2010 sales were up 21% from February 2009. An excessive amount of foreclosures and a glut of unsold condominiums in certain areas continues to keep prices low. This is good news for buyers, bad news for sellers.

Lower prices mean residents can buy a higher quality home for a reasonable price with a low mortgage rate. Slow but steady growth should result in appreciation of home values allowing those of modest means to make economic progress. Although unemployment remains high, temp agencies are now adding jobs, usually a precursor to real job growth. Job losses have slowed, but until the unemployed get back to work, sales will remain weak. Prices will remain low.

New home building has rebounded ever so slightly as building costs have decreased. This trend is limited to areas near large cities where the jobs are. New home buyers are primarily first time buyers and retirees who are finding affordable again. Construction is proceeding slowly. Builders remain cautious. Major concerns are the weak job sector and the continued glut of foreclosures for sale.

Some investors are betting that the economy will improve and beach cottages and condominiums will be in increasing demand for seasonal rentals. Many investors are buying and leasing to foreclosed homeowners who can't qualify for a home loan. There has been some return to lease options between investors and renters. There are many opportunities and pitfalls to be considered. The cyclical nature of economies and real estate has to be factored in to any buying decision. An investor buying a home today should plan to hold his investment for several years until the market has the opportunity to rebounds.

Expect mixed signals and uncertainty to continue through 2011. Although strong price corrections have already occurred, the real estate market may not yet have hit bottom. Mortgage rates and home prices are expected to remain low throughout 2011. A lot depends on the job sector. The unemployed don't buy homes. Home owners who lose their jobs may lose their homes to foreclosure. Residents who fear job losses do not buy homes. For those who can and are ready to buy, low home prices are allowing more residents to purchase homes and low cost rentals are bringing seasonal visitors and tourists back to many areas of the country.

by: Kevin Johnson

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