One of the more interesting things about the current market is how many different opinions there are based on basically the same information. There’s good news and there’s bad news. Some folks are very excited that existing home sales jumped 7.2% between June and July. Others are focused on the fact that prices are down 15% from last year.
With thanks to Ron Taplin of Maine Mortgage Services, I’d like share a couple of points made recently by Anthony Mirhaydari, a researcher for the Strategic Advantage investment newsletter.
We start with the fact that current buying trends are by no means normal. Sales are up, but a large percentage of those sales are transactions rooted in some form of financial distress. Some reports indicate only 10% of sales are coming from a “normal” process. July foreclosures increased 7% in July and the Mortgage Bankers Association reports more than one in eight mortgage holders are in some form of trouble.
One troubling aspect is that these troubles are not coming from risky (sub-prime) borrowers. Last year 49% of foreclosures were sub-prime borrowers. This year that number has dropped to 33%. In layman’s terms, more people who are (or were) “good” credit risks are getting in trouble.
If your eyes haven’t glazed over yet, you could get interested in the “looming wave” of loan resets. ARM (Adjustable Rate Mortgage) holders are facing the prospect of higher payments in the not too distant future.
But wait, there’s more!
Inventory continues out grow at a rate exceeding sales… and there’s some “pent up” inventory of people who want to list but are waiting until the market “improves.” It wouldn’t be unreasonable to apply this same logic to foreclosures–not only are we seeing more people “in trouble,” we also probably have a backlog of properties in the foreclosure pipeline.
What does all this mean? I’ll of course point out that “all real estate is local in nature.” I can offer examples that run counter to the statistics: a parcel of land I listed that went under contract at full listing price after only two days on the market, a buyer who keeps inquiring about homes only to learn they’ve gone under-contract before we can get the information. These are, however, exceptions.
Personally, I think it’s going to be a long cold winter and the best advice I can give to Maine folks is “get yer wood in…” If you want to talk about buying or selling real estate, the best advice is to do just that: talk about it, think about it. This is not a good time for generalities. Your real estate decisions need to be made thoughtfully and deliberately–not based on national headlines and statistics. We certainly need to be aware of what’s going on, but it’s also a time to write your own news story based on your individual circumstances as well as your very local market.