What it will take to turn the housing market around

Posted by Jeff Aughey on Thursday, October 23rd, 2008 at 10:13pm.

These days I am often asked when the housing market will start to improve. Of course being me I have a few opinions. First though we must recognize what got us into this mess before we can understand how to get out. Quite simply this was caused by a confluence of the following factors:
  • Loose loan qualification standards driven primarily by Fannie Mae and Freddie Mac guidelines
  • Low interest rates that helped fuel the dramatic rise in home values giving the impression that fantastic profits could be made safely by short term real estate ownership
  • Investors and owner occupant home buyers that purchased homes as investments without considering the reality that homes prices don't always go up
  • Lenders that were more than happy to originate loans to anybody that could spell their name correctly two out of three times
  • Buyers that were willing to use creative loan programs designed to get them into homes that were really more than they could comfortably afford
Mix it all together and CRASH! In 2005 the Alpharetta and Johns Creek real estate market was about two and a half times stronger than it is now. Our market moved from one that was balanced or slightly in favor of the seller to our current market that strongly favors buyers. In 2005 there was just over a four month supply of homes on the market (total number of homes for sale divided by the number of homes sales in a month). Most months this year have averaged about a ten month supply of homes (varies depending on price range) and things look much worse for October. So what will it take to turn this around? Fortunately much of the remedy is already taking place.
  • Responsible lenders - approving loans to buyers with jobs, good credit and a down payment
  • Builders cutting back on construction to shrink the supply of homes for sale
  • The public recognizing that home ownership is generally not a good short term investment
  • Financial frugality - Just as high gas prices drove people into fuel efficient vehicles, this mess is making people more aware that good financial decisions are their responsibility. Hopefully we will see a trend that has people buying below their means instead of right to the edge. That way if surprises happen in their lives they won't loose their homes as a result
  • Market health would improve if sellers who don't really have to sell would keep their homes off the market. Lower inventory of homes for sale would help stabilize home prices.
  • Time - in time (and without market distorting government interference) things will settle into a new rhythm and we will become adjusted to the new market realities
Please please please take the following advice if you are thinking about selling your home now. Don't even try unless you must sell for financial reasons, must relocate or plan to move up to a more expensive home and want to try to get a steal of a deal in a bank foreclosure sale. The market is tougher that I have ever seen in my twenty years selling homes in the Atlanta metro area. Be realistic about your needs and desires to sell. Do not waste your time unless you are willing to get your home in tip top shape and price your home at a level that you feel is giving the home away. That is what it takes right now to create a successful sale. I expect that it will take a while for the housing market to recover and realize we are not going to get back to the level of sales in 2004 and 2005. I will alert you when I see the market starting to turn for the better. If you must sell now please give me a quick call and I will let you know exactly what you need to do to be successful. If you want to purchase a home then I will be happy to help you get a great value (maybe a foreclosure or a short sale). Keep your spirits up, we still live in the very best country there is and this will all be forgotten ten years down the road.

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