2004 has been another good year for home sales. At the beginning of 2004, interest rates on 30-year fixed-rate mortgages were expected to rise to 7.5 percent by the end of the year. But in early November, interest rates were still well under 6 percent. Low rates kept housing relatively affordable, even as home prices continued to rise in many areas.
The market forces of supply and demand determine whether the market favors sellers or buyers. When the supply of homes for sale rises, buyer demand becomes diluted. Buyers have more to choose from, so the sense of urgency to buy now tends to wane.
In a market with a limited supply of homes for sale, sellers often have the upper hand. Buyers find themselves in multiple offer competition, which puts an upward pressure on home prices.
Interest rates serve as the lubricant that keeps the wheels churning. High rates can squelch demand, which was the case in the early 1980s. Few buyers could qualify when interest rates hovered near 18 percent. Recently, low interest rates have propelled the home sale market forward.
Looked at from a national perspective, it would appear that the ingredients are in place for the continuation of a seller’s market. However, generalizations that apply to a larger market, may not apply to the home sale market in your neighborhood. If you’re trying to determine if this is a good time for you to buy or sell, your analysis should focus on your local scene.
For example, the Los Angeles home sale market was booming through the summer months. Recently, the inventory of homes for sale increased and that market slowed down. Exactly how much the market has slowed is difficult to measure accurately because a certain percentage of those homes listed for sale are over-priced for the market. This often happens when sellers rush to sell in time to take advantage of a spike in home prices. Even when the inventory of homes for sale is low, there’s rarely a demand for over-priced listings.
Focusing on the local level geographically may not give you the full picture. Within one neighborhood, you may find that there are different market forces at work, depending on the price range. For example, in the San Francisco Bay Area, you tend to find that homes priced below $500,000 are still selling quickly, many with multiple offers.
The same dynamic does not apply to the million-dollar-plus market, where there are fewer buyers and less multiple offers. In fact many of the higher-priced listings are taking months to sell. Keep this in mind if you’re planning a trade move.
HOUSE HUNTING TIP: Now is a good time for repeat home buyers to make a move because interest rates are low. If you’re selling a lower-priced home in order to buy in a higher-priced home, you could find that you’re selling in a seller’s market and buying in a buyer’s market. However, if you’re selling a more expensive home, you may experience a slower market than you might have expected. This should be factored in to your decision to buy or sell first.
Anecdotal evidence suggests that in some areas the home sale market is in a transitional phase from a seller’s market to a more balanced market. Buyers are more discriminating. Homes with an incurable defect like a location near a busy freeway or up a lot of stairs aren’t being snapped up. Over-priced listings aren’t moving.
THE CLOSING: However, where inventories remain low, well-priced listings continue to be in demand.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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