Home BuyingMarket Conditions August 8, 2011


by Jim Stefanile,  ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

My parents bought their one and only home in 1951 with a 3% mortgage.  My mother was so concerned about defaulting on that loan that she made my father pay it off early.  The reason she was worried was because my father was an independent contractor and his continued employment was always uncertain.

Fast forward to 2011.  My parents no longer have to worry about their mortgage (or anything else, for that matter).  A short term mortgage is about 3.5% and a 30 year fixed is, as of this writing about 4.5%.  These are the lowest rates since my parents became homeowners.  Buyers should be nibbling at my toes, right?  And how about this: there is more inventory and more pressure on price than ever before.  Even the most stubborn sellers are beginning (after 4 years of a down market) to be practical on price and more inclined to make a deal.

Homebuyers should be beating down my door, but, as we are all aware, they are not.  There is some improvement in raw numbers of sales since the depths of the recession but nothing I would call an upward trend.  The reason is the same as what worried my mother – uncertainty.

With recession often comes re-organization and re-trenchment in the private sector which is bad news for the sitting workforce.  The uncertainty of employment is a real damper on spending, especially on big ticket items such as housing.  The pressure on organized labor in the face of shrinking resources also erodes confidence in the future among that membership.  The debt debacle in Washington and the recent downgrading of  the United States’ credit rating is throwing more uncertainty into an already tense environment.  The country is struggling to shake off a recession of epic proportions which shook the country’s confidence in its banks and government.  What recovery there has been has been slow, fitful and, for the most part,  jobless.

The fractious national political environment makes it all but impossible for our leaders to impart strong re-assurance.  Lining up the strength and resources of the government  is much more complicated than when the WPA was launched along with other safety net programs. In the 1930’s the government was the solution to the excesses of the market and the suffering of the citizenry.  Today, we hear echos of Ronald Reagan proclaiming the “government is the problem.”

The loss of confidence in our government, our standard of living, our very place in the world is one of the factors holding the housing market in a vice grip of  inactivity.  The great irony is that there has not been better buying conditions since my parents were house hunters and that’s going to waste while we worry and fret over our jobs, our savings and the direction the country is taking (whatever that means).

I’ve seen a dramatic upturn in the rental market lately.  What that tells me is the so-called “pent up demand” for housing is taking a detour.  Instead of buyers bursting onto the scene to take advantage of the selection and cheap credit they are hedging their bet by renting instead.  People need housing, as always.  How they choose to get it tells the tale.  Many of the prospective tenants I help have 800 credit scores.  They could buy if they wanted to, but, rather, they are sitting on the rental fence in the form of a 1 year lease.

As a REALTOR I feel the need to encourage people to jump off the fence and get on with their lives.  At the same time I understand the uncertainty that makes them hold on to that fence with a white knuckled grip.  I’d hate to see credit get more expensive and the opportunities disappear for so many qualified potential homeowners.  The over all housing market changes over time.  Six months after I bought my home the interest rates peaked at 18% and lenders weren’t even lending after a certain point in each month.  We are now in a perfect confluence of credit prices and selection.  The only thing missing is demand.  This is enough to make real estate practitioners shake their fists at the sky and scream “very funny!” at whatever fates you believe in.

I refer to the early 2000’s boom as “the good old days”.  Wouldn’t it be weird if, in 2 years, when interest rates are 8% again and the foreclosures are flushed out of the market and the housing selection is limited, we look back on 2011 as “the good old days”.