Spring Sale: Home Sellers May Flood the Market Soon

By Jeff Cox
|  Monday, Mar 23, 2009  |  Updated 11:56 PM EDT
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Spring Sale: Home Sellers May Flood the Market Soon

A combination of lower interest rates and government efforts to free up credit could result in a flood of homes being put up for sale in the coming weeks.

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Get ready for a Spring housing boom.

A combination of lower interest rates and government efforts to free up credit could result in a flood of homes being put up for sale in the coming weeks. 

"We're seeing a lot of activity with (sellers) starting to kick tires again," says Alan Rosenbaum, president of GuardHill Financial,  a mortgage advisory firm, in New York. "We try to show them the affordability factor. Rather than waiting for rock bottom, the intelligent ones are moving into the marketplace and seeing what's available."

While great for potential buyers, the added glut of housing could push prices even lower, further depressing the market. At the same time, it could actually jump-start housing by bringing more home-buyers into the market.

With stimulating the real estate market a principal goal of Washington policymakers, the temptation for buyers and sellers to jump into the market could be irresistible, especially if interest rates stay low.

"The first signs of life you see in home sales you're going to see met with a lot more inventory," says Michael Pento, chief economist with Delta Global Advisors. "The last thing you want to do as to add more inventory to an already-oversaturated market."

The past week indeed has shown some glimmers of hope for real estate.

Mortgage rates tumbled after the Federal Reserve on Wednesday announced plans to buy up mortgage debt in a move hoped to instill confidence that banks issuing home loans will have somewhere to sell them.

Earlier in the week, building permits and housing starts for February were far above analyst estimates, another sign that some confidence is returning to the housing markets even as home prices drop and sales continue to lag. 

Pento, who says he has seen a spate of new "for sale" signs in his Monmouth County, N.J., neighborhood, thinks the combination of news has inspired some false hope that housing is ready for a quick turnaround.

"The real estate malaise that we're in is still going to last for quite some time," he says. "We have to hope for one thing, which is that the Hovnanians and the Lennars of the world have one thing inculcated into their brains: Don't overbuild."

Signs of Spring

Yet the anecdotal signs are increasing that some are pinning their hopes of an economic rebound on the various measures taken to help housing.

Mortgage refinancing applications have been on a fairly steady uptick, but now some of those are coming from folks who are also putting their homes on the block.Those types of clients, Rosenbaum says, feel they are in a win-win situation: Either they get someone to buy their home, or they negotiate a lower rate on their mortgage.

Rosenbaum says financing can be had, but there are more restrictions than in the past and buyers and refinancers need to explore as many options as possible when looking for money.

 

Should sellers and buyers match, the sellers believe this is an optimal time to trade up and get more value for their money at a time when housing prices are severely depressed.

"A lot of people would like to see what they can really get in today's market," Rosenbaum says. "If they can get a reasonable bid, they want to jump in the marketplace. They want to buy something they've been looking to buy for a couple of years."

The trend presents an interesting quandary: The glut of inventory will continue to depress prices for sellers, but also provide buyers with savings. Whether buyers can save more on their purchase than they lose on the sale will help determine if the trading-up trend can take root in the market.

"If you have a $500,000 home and you need to expand, you might take a 20 percent hit on the price. But if you're looking to buy an $800,000 home and you get a 20 percent reduction, you're ahead of the game," Rosenbaum says.

But Will Homes Sell?

Standing in the way of any hopes for housing is the ever-looming issue of whether banks will become any more willing to lend even in the face of federal guarantees and lower rates.

"When you start to see the excitement come back into the market, you're going to see the absorption rate really narrow and existing home sales pick up," Rosenbaum says. "But only if they can continue to get banks lending."

Banks are still faced with capital ratio problems and likely will continue to demand higher credit scores and substantial down payments, making it difficult for first-time buyers to get into the market.

That has some economists worried about whether it's reasonable to expect a change in housing.

"Until you can get the unemployment rate down and the economy back on its feet you're going to have no permanent healing in the residential real estate market," Pento says. "It's much too early to be talking about a substantial rise in the economy, because we're doing everything wrong."

 

In the meantime, those looking to sell their properties will have to be both bargain-hunter and bargain-provider, listing their homes at prices sensitive to their particular markets. Buyers, on the other hand, are facing a new reality of FICO credit scores of at least 620 as well as substantial skin in the game in the form of a 20 percent or so down payment.

"If I can come to market at the right price, that's really the most crucial element in the process," says Paul Purcell, of Charles Rutenberg Realty in New York. "You can advertise the heck out of something, but if you've mispriced for our market it doesn't matter what you're going to do. It's all about price right now for a buyer."

And convincing people to face the price realities of both the buy and sell sides of the equation is likely to be touchy.

"A lot of people are waiting for the right time to move up to a larger property but they don't want to sell their smaller house low. It's human nature to want that," says Diane Saatchi, senior vice president of The Corcoran Group.

"I don't think people have embraced the idea that they can get a better deal on the big property but they're going to have to take a hit on the smaller property. The market hasn't gotten there yet."

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