Lawrence Yun, vice president of research for NAR (National Association of Realtors) predicts an improvement in the real estate market for the fourth quarter of 2007 and sites the following reasons for this rosy prediction:
- Pent-up demand. Nearly 4 million jobs were added since home sales started cooling in mid-2005, and the typical worker’s wages have risen 7%, leading to a $1.35 trillion rise in aggregate national income. At the same time, wealth has grown significantly, with the Dow Jones Industrial Average hovering at record highs. Indeed, accumulated household wealth as of the first quarter was at a record $56.2 trillion. So people have the means to purchase homes.
- Delayed household formation. The number of households typically grows by up to 1.5 million a year, but in the first quarter, the year-over-year figure was only half a million. That weak performance suggests people are holding back because of uncertainty over the future, a trend that fuels pent-up demand.
- Rising rents. With renters hesitating to buy, landlords are raising rents. Average rents rose 8 percent in the past two years. As renters start feeling squeezed, ownership will look more attractive.
- Condos make modest gains. The condo market has outperformed the single-family market in sales and price changes since early this year. Single-family homes could follow suit.
- Better mortgage quality. Mortgage applications for home purchases have been rising nearly 10 percent on a year-over-year basis since May. This data, from the Mortgage Bankers Association, focuses mainly on applicants for prime and FHA loans, so the rise indicates a flight to quality.
- Dollar weakness. The falling dollar has dangled a big “For Sale” sign in front of property attractive to foreign buyers. Europeans can now buy a vacation home at essentially a 15 percent discount. That’s good for sales. And despite the weak dollar, which usually leads to higher interest rates, mortgage rates remain attractive at around 6.7 percent.
- 2008 rate cut. Inflation looks to slide as the year proceeds. If it does, the Federal Reserve could lower interest rates, possibly as soon as early 2008.
While this is great news for many of us that own properties, we all need to keep in mind that real estate is a very localized market and overall trends for the nation may not necessarily reflect the conditions in your local market. At least two of the reasons for improvement by NAR do not apply to the Orlando market. This report cites the sale of condos outperforming single family homes but the exact opposite is true for Orlando with numerous condos that were once the hopes and dreams of investors are now sitting vacant on the market at a lower price than they purchased them for. Condo sales have lagged behind significantly behind the sale of single family homes in the Orlando market. Rental rates for these condos have also lagged as desperate investors search for any sort of cash flow from their investment.