Where Is This Real Estate Market Going?

There is an article in Sunday’s Dallas Morning News talking about the inventory overhang that is going on in much of the country causing appreciation of current home values to remain stagnant and new home starts to drop sharply. And then there is the article by an economist published on the National Association of REALTOR’s website pretty much saying the same thing but with a smiley face.

I’ve also seen articles talking about how we bottomed out in 2006 or will bottom out in the first quarter of 2007. Or maybe the second quarter. The point is…who can know?

In my opinion, and I’m going to go opposite of most of my glass is half full breathren, I think 2007’s selling seasons (Spring, Summer & Fall) will bring more of the same that 2006 brought. Sellers are going to have to be realistic about the condition of their property relative to what else can be purchased. Price, condition, location are primary with a limited pool of buyers. Buyers are still not going to be able to “steal” homes because many sellers have refinanced and refinanced to the point they cannot discount their homes because there is no equity.

The elephant in the corner is foreclosures. We are already at record levels here in Johnson County and Kansas City in general. If they continue to increase rapidly over the next six months it could really begin to affect appraisal values in many, many neighborhoods. When appraisal values cease meeting sales prices (a situation that happened in an upper middle class neighborhood recently that an associate of mine is working with) we are going to be standing on the edge of a slippery slope.

The unspoken benefit of this could be that housing becomes more affordable. Take for instance the investor. Being able to purchase a slightly depressed property (SFH or multi…doesn’t matter) allows the owner to rent for less or to pocket a few extra dollars. If it rents quickly, the latter is probably the case. But if it takes a month or two to rent then the landlord might be a little more willing to drop his rate a little bit (staying within his cash flow parameters because he bought it cheaper than his fellow landlords) and causing a situation where the tenant now has a more affordable home.

Here in the Heartland I do not believe we are in for a “thump” or a crash. Nor do I believe the hype that we’ve weathered the storm and that this spring will bring green grass and roses. I do believe we will remain stagnant with the possiblity of moderate growth. In other words, partly cloudy with a breeze from the south that has a 10% chance of bringing rain with it.

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