Amazingly, August was the 20th straight month with higher sales than the same month for the previous year. Even more amazing to me is that we are this far into a trend and people are still nervous about the future of the market. Housing prices are recovering nicely; so much that we have even seen a few reports that we have exceeded pre-crash prices (not sure I believe that one). Nervousness persists despite the fact that we will exceed 1,000 closings in Longmont for the year for the first time since 2006. Where’s the faith?
Recent history tells us that interest rates are one of the primary factors to fuel the success of the resale market. I’m not a firm believer in the theory that interest rates, especially the ultra low rates of recent years, are the cause of the recovery and the health of the future. There is a correlationand the low rates have helped spur sales and investments through out the nation. I believe in the long run they are unhealthy for the real estate economy. Rates have gone upover a point in the last couple of months and we are still setting sales records, so the idea that they are the primary factor in motivating people to move or buy can’t be true. Very high rates of 10% or more would surely be a detriment to the business, but high 5’s is still a great rate.
August 2013 Longmont Stats
Stability is a better gauge of the future of the market. It’s sure hard to pinpoint when a person feels safe and stable, but it isn’t too difficult to recognize fear in the eyes of a buyer. People will buy when they have some money saved, lower debt and feel safe in the future of their job. For many Americans and home buyers, their increased perception of security is the byproduct of the recent recession because they took the bull by the horns to reign in spending and pay down debt. Their feeling of job security is from their employer hiring instead of laying off workers. This is happening today all around us. Sure there are many reports that still show where the economy is weak, but when was there a time when the economy was firing on all 300 million cylinders? We simply can’t have it all, all at the same time, so there will always be sectors that lag others (fast food workers are the cause du jour).
Focus your buyers and sellers on the future and stability of the market. I said over a year ago to disregard the threats of the purported “shadow inventory” of foreclosed homes and move ahead with conditions, situations and inventory at hand. I suggest doing the same in respect to interest rates. Are they the primary factor in a family moving into their dream home? The rise in rates may disqualify a few people from buying at this time, but that probably isn’t something that building a savings account or some credit repair can’t help. As a lender client of mine recently noted – if interest rate really is a big factor, do some simple math and show them the difference. The increase in payment on $250k from 4.75% to 5.75% is about $140…a month.