A Great Combination : Too Many Homes For Sale And Low Mortgage Rates

Existing Home Sales fell below the 5-million trendline in November 2008

For the first time in over a year, the sales of “used homes” fell below the 5-million unit trendline, helping to push the total home inventory higher by 0.1 percent nationwide.

Based on the rate at which homes are selling nationwide, it would take 11.2 months for the existing housing supply to be exhausted.

For home buyers, this is an opportune time for negative news on housing.

First, sellers know that between now and the Super Bowl, housing activity will be light.  The general scarcity of buyers may force a seller to accept a bid he wouldn’t have accepted otherwise.

Second, the economy is showing weakness and that, too, can concern a home seller.  Buyers are less likely to extend themselves during times of economic uncertainty, further reducing the buyer pool and, again, putting pressure on the seller to “make a deal”.

And lastly, because the government has been trying to force mortgage rates down as a way to stimulate the economy, the weak housing data is actually making it cheaper to finance a home.  This means that a well-qualified home buyer can better stay within budget.

Each 0.500 percent rate reduction saves $33 per $100,000 borrowed.

It is important to remember, though,  that the U.S. housing market is not national — it’s highly localized.  This is one reason why national real estate reports can be misleading.  Just as figures from Phoenix have little to do with statistics from St. Paul, even data from neighboring ZIP codes can vary.

The universal truth, however, is that a home that is priced fairly will sell more quickly than a home that is not.  And, until the Super Bowl passes in 45 days, expect fewer buyers to be out there competing for them.

(Image courtesy: The Wall Street Journal Online)

Post