Normally lower home prices would be good for any housing recovery and good for first time or move up home buyers.
Home sales data indicate an upward tick after 2010, the worst year of sales in a decade. Any momentum however is not coming from the typical homeowner but from cash rich investors who are snapping up foreclosed and distressed properties at bargain prices. Homeowners or first time buyers crucial to sustaining a recognizable housing recovery are not a market force.
While the number of first time homebuyers has declined, all cash deals have increased, accounting for one third of all home sales in January 2011. A record number of foreclosures have continued to depress prices. The median sales price of existing homes in January fell to it's lowest level in 9 years. Lenders are requiring much tighter lending standards and higher down payments from borrowers searching for financing. In most cases the average requirement is 20% down with perfect credit. The inability to find available conventional financing results in fewer buyers shopping for homes and fewer sellers putting existing homes on the market in order to upgrade.
Cash rich investors are only interested in properties at risk of foreclosure or already foreclosed. They can aquire them at bargain basement prices. The average blue collar worker or first time home buyer can't take advantage because they cannot get the credit needed to buy. A major barrier for the first time homebuyer, preventing many from buying even when the median price fell to it's lowest in many years.
A record number of coming foreclosures or "shadow inventory" still loom large over the next 2 years. As prices continue to decline any housing recovery as we know it will also fizzle out. Supported only by cash we may never recognize or look at the real estate market in the same ways we had. Housing may be becoming a cash commodity for those who are willing to play and gamble. Banks obviously are not playing anymore.
George Sinacori
GES Real Estate
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