Double Dip or Little Lull?

It has been obvious to everyone in the real estate business, particularly in the past 4 weeks, there has been a distinct lull in activity, sales and interested buyers. Not 3 months ago, in April, there was a palpable feeling that we may be through the proverbial woods and greener pastures lay ahead. There is plenty of anecdotal evidence that there may be still be more trees to march through. For example, I listed a home in Placentia 18 months ago for $549,500 and had over 15 showings in the first 2 weeks, had 2 offers and although my sellers decided not to sell (job worries), would have accepted an offer for $525,000. I listed that same home 2 weeks ago, in better condition with additional improvements from 18 months ago, and have had 3 showings and no offers and we are priced $15,000 less than the previous time. Inventory (the number of homes on the market) is growing, but the number of buyers is not. Rates are at all-time lows (4.5% or lower), prices are still depressed, but activity is down. Why? Here is my theory:

• A Little Help Can Hurt – The federal stimulus for homebuyers, an $8,000 dollar for dollar reduction on income taxes expired at the end of April. Every March, April, May, June and July buyer decided to take advantage of this government largess. The problem is, and was, that the number of homes on the market did not increase accordingly. This program incentivized buyer to move up their timeline, but sellers did not alter theirs. Buyers gobbled up all the inventory, particularly REO’s and equity sales (those that could be expected to close on time, unlike Short Sales) and prices stayed firm. Now that the May, June and July sellers have come on the market, they want for buyers who have already purchased. Inventory has ballooned, but these sellers must wait for the August and September buyers to get in the game.

• Short Sale Good News/Bad News – It appears as though, across the board, more short sales are actually closing escrow. Of course, compared to the pathetic success rates of 2008 and 2009, banks should not gloat. But, as perhaps 30 or 35% of short sales navigate successfully through the choppy waters of the short sale process, up from the paltry 10 or 15% of previous years, buyers are more confident of pursuing these sales where in the past only the brave and blindly optimistic did before. For the past few years most Realtors advised their clients, no, begged their clients to avoid these listings like the plague. Now, more are choosing to represent buyers on these sales and the “premium” for standard, equity sales has diminished.

• It’s the Economy, Stupid – Until we are definitively and concretely out of this recession, probably best evidenced by a stock market north of 13,000 and unemployment near 8%, buyers will be hesitant to buy. Everyone wants to own a home or improve their quality of life, but they must be able to afford it and sustain it. This “feeling” of an improving economy could happen rapidly and consumer confidence become quite optimistic quickly.

Bottom line, buyers will buy if they feel like they are paying a “market” price, but that market price must be discounted for the higher success rate of short sales and the shortage of qualified buyers. But with rates so low, prices bumbling around at the bottom and the economy (hopefully) in the last throes of a recession, I see this as a lull, not a double dip.