Saturday, March 10, 2012

Good Real Estate Market Or Bad?

So you want to check out the real estate market, but you don't know what to look at. You hear all sorts of stories about foreclosures, dropping home prices, lending problems, and the like. In fact, you are pretty sure it's a bad market, right? NOT!

There are five (5) key statistics you need to look at to get a simple, but strong view! They are 'Home Sales', 'Median Price', 'Inventory', 'Mortgage Rates', and 'Home Affordability'. These will paint a nice picture of what's really going on.

From 1999 through 2005, home sales rose from 5.2 million to 7.1 million. Starting in 2006, home sales starting dropping, and in 2009 we were back to 2005 levels. This is what is known as a 'Market Correction'. If you were a home owner, and trying to sell during this period, you know exactly what this is. If sales are down, usually that means prices are down as well. However the real story lies in the fact that from 2008 to 2009, home sales rose by 300,000 homes. Out of the slump? Well, let's look further!

Median home prices dropped in 2009. In 2008 the median home price in America was $198,000, and in 2009 it dropped to $174,000. Not good, but explainable! For one there was a huge surge in distressed properties, which sell for 15% to 20% less than market value. Also, there was a huge influx of new home buyers, due to the government tax break, and these are typically lower cost homes. Lastly, there was a huge slowdown of high-end homes because jumbo loans became almost non-existent. So factor all this in, and the drop is very understandable! Bad market? Let's look further!

The saying goes, if there is five or less months of inventory (number of homes on the market divided by the number sold), then it's a seller's market. Anything at six months or higher, it's a buyers market. From 2003 to 2009, a span of seven years, we only had three seller's markets, 2003, 2004, and 2005. 2009 has a nine month inventory, down from eleven months in 2008, ouch! The only thing to remember is that one half of the market are buyers, and the other half is sellers. An inventory of eleven months is darn good for buyers, half of the real estate market! So what's my point, it's always a good market, it only depends on what you are doing, buying or selling! So, is it a bad market? Let's look further!

Anyone buying today, and financing, it is a tremendous market. Money is cheap these days, and history points this out. The trend is down, all the way from 10% in 1989, to now under 5%! No if, ands, or buts about it, the mortgage market is the best it has almost ever been, certainly the best over the last twenty years! So, is it a good market? Let's take a look at the last, but not least, category - affordability!

Can you afford a home? Not a bad question if you're getting into a mortgage. In fact, you really don't have to do anything but give your lender all the facts, and loan guidelines will tell you what you can afford. Simply put, it's a ratio between what you make, and what you spend. But there is a measurement for this, over time, and it's called 'affordability'. Affordability in the U.S. measures the ability to purchase a home. It's the amount of a median family's income consumed by the medium mortgage. In 1981 it took 36% of the family income to pay a mortgage. In 2009, it took only 15%, and this is a historic low!

If you are going to measure whether it's a good real estate market or not, which of the above factors is important to you? Sure home sales are down, but beginning to rise again, so what! Median prices are down, but rising again, so what! Inventory shows us it's a buyers market, so what! But, no matter if you are trying to sell a home, or buy a home, the major factors are interest rates, and affordability, right? It makes sense that if you're going to sell a home, you want low-interest rates, so a potential buyer can by your home. The same goes for affordability. In fact, the same reasons apply to both sellers, and buyers.

The word: It's a great real estate market, right now! Tell everyone you know!

Information on this article came from 'The 5 Statistics Every Agent Should Know', A Keller Williams Market Navigator, Vision and Opportunities publication.

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