The spring home-buying season is upon us. In small towns and big cities alike, "Open House" and "For Sale" signs are sprouting like crocuses. But it will take more than pleasant weather to thaw the ice-cold real estate market.
Many buyers—especially now that the housing slump is in its third year—are reluctant to take a chance on real estate in the face of continuing price declines, foreclosures, record gas prices, job losses, and general economic uncertainty.
Spring is traditionally the busiest time for real estate, largely because parents, readying for a summer purchase, don't want to move during the school season.
"Certainly it will be a big test," says James Hughes, Dean of the Edward J. Bloustein School of Planning & Public Policy at Rutgers University. "If it doesn't pick up this spring, then we'll have another year on the down cycle. If it does pick up, we'll have modest stabilization."
Where some see despair, others see hope. Sellers, who were once clinging to boom-time expectations, are trimming asking prices. But the news isn't all bad for buyers. In fact, for some the timing couldn't be better. The lower prices—at least in some markets—are making homes affordable for first-time home buyers and more attractive for investors on the lookout for fire-sale discounts.
Of course, a flurry of foreclosures is also responsible for pushing down prices and adding to the glut of unsold homes, even in many of the nation's most affluent cities and suburbs.
Some good deals
BusinessWeek.com, with the help of Mountain View (Calif.)-based Altos Research, a real-time housing research firm, ranked 14 of the country's largest cities based on how much sellers have slashed listing prices. At the top of the list is Sacramento, where the median asking price on Apr. 11 was $226,978—a 41% drop from a year earlier, according to Altos.
Other markets with declines of 20% or more include Phoenix, Los Angeles, Las Vegas, Atlanta, and San Diego. On the other hand, Texas markets such as Houston, Austin, and Dallas, where inventory is relatively tight, have been doing much better. (It probably helps that the oil and gas industry, a key element of the state's economy, is booming.) The annual asking price in Dallas actually increased 6.4%.
Annual listing price information was not available for Manhattan, one of the world's tightest markets. But a recent report indicated that the median Manhattan condo and co-op sales price in the first quarter rose 13% compared to the same quarter a year ago.
"Yes, there is some opportunity for buyers and investors to find good deals but the conditions for them to get financing are tougher," says Michael Simonsen, Altos co-founder and CEO. "People in the strongest positions might be able to take advantage of it. But clearly there is far more inventory than investors to pick it up."
'A redistribution of wealth'
David Zugheri, co-founder of First Houston Mortgage, says the best properties located in or near downtowns in Texas are selling briskly. But owners of new homes built miles from job centers are seeing steep price declines.
Zugheri is optimistic the spring will help to awaken the Texas housing market. "There are going to be first-time home buyers coming out of the woodwork," he says. "Some people get tax refunds, and they're going to use them for a down payment. One man's loss is another man's gain. There will be a redistribution of wealth here that we haven't seen since the mid-1980s."
Sellers in Las Vegas are having to compete with a flood of heavily discounted bank-owned properties, says local mortgage broker Colleen Jane McGrath. But investors are returning to the market and scooping up houses, sometimes at 50% of the last list price. And they're renting the homes to people who lost their own houses to foreclosure, she says.
Not the best time to sell
In Los Angeles, buyers are concerned about the uncertainty in the market, says Simon Bliss, marketing manager for American Financial Realty & Mortgage in West Hollywood. "It has scared people so much that there's a huge standstill in the market," Bliss says. "It's like trying to second-guess a hurricane."
Rick Sharga, vice-president for marketing at Irvine (Calif.)-based RealtyTrac, an online marketplace for repossessed real estate, says it's a bad time to be a seller.
"If you're a seller, it's a good time to take the 'For Sale' sign off the front lawn," Sharga says. "If you don't have to sell, now is a good time to be on the sidelines. That's one of the reasons that the jury is out on how active the spring buying season is going to be."