Thursday, July 22, 2010

6 Reasons the Housing Market Hasn't Recovered & Why You Should Renovate NOW!

Stumbled on a very insightful article from US News on the 6 Reasons the Housing Market Hasn't Recovered. I'll do my best to paraphrase the important parts but it calls to attention a great detail to keep in mind, now is the time to remodel and renovate your home.

It's pretty clear from the national news, economists, and government reporting that the United States economy is in some pretty bad shape and likely won't really start the uphill climb for a few years, if not more. So while we wait for the market to return you might as well get the most out of the home you're currently in. Not only does this benefit you but it also puts you in a better position to sell your home in the future. As an added bonus (and much to our dismay as professionals) construction costs are at an all time low which means that you can cash in on the savings and be able to complete projects that may have otherwise been out of the budget.

So keep that as food for thought and now onto those 6 Reasons the Housing Market Hasn't Recovered...

1. Record Unemployment. The unemployment rate is sitting at just under 10%!! That's a LOT of people out of work! It's a pretty simple concept, when there are no jobs no one can afford a house nor can they qualify for one. What's worse is that this knowledge destroys consumer confidence. The result? The people who are maintaining a job avoid homeownership like the plague for fear that they too may lose their job and be left with a mortgage they can no longer pay for. Until our job force returns the entire real estate realm is going to be in a holding pattern.

2. Household Formation. Typically people "form" a household and move into their own home. With the state of the current economy people are no longer forming new households and are instead combining them. Families are moving in together, children are moving back home, relatives are combining households, all as a result of the lack of income, which is directly related to the job market. In fact the number of new household formations over the last year has seen the second smallest increase since 1947!

3. Foreclosures. Not at all surprising, the number of foreclosures out there on top of typical new construction mean a highly oversaturated market. RealtyTrac execs expect the number of foreclosures to exceed 3 million properties by the end of the year with 1 million more in bank repos. And with the growing number of layoffs and families still struggling to meet their mortgages the numbers will only increase from there. See the vicious cycle here??

4. Tight Credit Standards. Mortgage rates are hitting all time lows so why isn't everyone jumping into new homes.... because they can't qualify for a mortgage in the first place. Banks have been hardened with the blow of bad loans so they're requiring some serious ante from prospective buyers outside of their first born son. To take advantage of these great rates you're going to need a FICO score of 720 or better, outside of FHA loans, and anywhere from 10-40% down. Not exactly the profile of most Americans right now....

5. Falling Home Prices. You'd think that cheaper prices would stimulate the market but here we go with the consumer confidence aspect again. With the news blaring about slumping home prices it drives in the message that owning a home is BAD thing right now. "Don't get yourself stuck in a home loan... do you see what's happening to people out there right now... they're upside down.... they're losing everything... they're stuck in their home forever." These implications aren't quite sending a positive message about homeownership! So those folks that would be prospective buyers are bailing from the sinking ship.

6. Selling your current home. If you're one of the millions out there committed to a mortgage already it's a daunting task to think about buying a new home because you have a giant black cloud looming over your head. In today's market 1 in 4 homeowners is upside down on their mortgage, they have negative equity. So in order to get out they would have to take a loss on the property and not too many folks are rushing in to do that!

It all goes back to the number one issue, the economy.... bad economy means no jobs, no jobs means no loans, and no loans mean no home sales. So as unfortunate as the situation may be it's not a bad idea to stay put while the dust settles and take advantage of some of the positives of the economy, like cheap construction costs to get your home improvement going.

~5280 Lady


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