For the last few years home prices have been rising about as quickly as gas prices. The market has already priced out a sizeable chunk of Americans, and as prices continue to climb, more potential homeowners are going to get left out in the cold. Good news! The same builders who have been raising prices and banking record profits are about to get caught by their own greed. New home inventories are reaching record levels, and there are even more in the construction pipeline. What does all this mean? It means supply is exceeding demand, and that means a buyers market may be on the way. Interest rate hikes are putting the squeeze on buyers, raising minimum monthly payments on homes they could have afforded when rates were lower. The result is, buyers cant afford to make the payments on the houses builders have in inventory, and they wont be able to afford the ones that are in construction now. The solution? Theres only one viable road the builders can take, and thats to offer discounts. Tossing in pricy extras for free, the stategy they are taking now, isnt going to help get a overstreached buyer into a home; they have to lower prices. Builders are currently playing a high stakes game of chicken with buyers. First they claimed there was no bubble, and now they claim the market is simply cooling. Nice PR, but dont buy it. The Fed would rather let the housing market take a hit now, than let inflation destroy the economy. The more rates rise, the harder it gets to sell homes. Theres already nine months worth of inventory. Who wants to bet the builders are willing to let that hit 18-24 months? So inventories are rising, prices are rising, property taxes are rising, and interest rates are rising. Guess what else is also rising? Mortgage defaults. Ouch! Uncle Sam is going to be coming to market with a barge load of homes all over the country, and he could care less about making a profit, he just wants out. Whats that cracking noise? Someone snapping? By early fall, builders, speculators, private sellers, the banks, and Uncle Sam are going to be fighting over buyers. Thats a game of chicken none of them are going to win. Prices are going to fall; how hard, and how fast remains to be seen. As a buyer, there are two things you need to look at: will rates rise too high, and eat up any discount a builder may give, or will prices fall faster than rates rise and provide you with a better deal? A third factor that many people forget to figure in is inflation. If prices on goods and services rise due to increasing gas prices, this leaves less money in the budget. Credit becomes more expensive as rates rise, and savings dip to cover the extra costs that already stretched paychecks can't meet. While this may seem like bad news for buyers, it is worse news for builders, investors, and banks. Home sales slump, mortgage applications dry up, and the entire industry looks to the Fed to save it. Flash back to the early 1980s. Everyones looking to sell a home, and no one can afford to buy one. So which is it going to be? A buyers market or a sellers profit buffet? Let your cell phone be your guide. The more aggressive real estate agents get, the harder it is for them to make a sale. If they are not calling you several times per day, seven days per week, they have enough buyers to go around. When you phone wont stop ringing, and the agents are camped in front of your doorstep, then you know they are hungry. This is one time when a wait and see attitude may wind up paying off big. The real estate PR guys may be calling this cooling, but buyers are going to call it what it is; good news. |
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