As 2009 comes to a close, it has brought the longest episode of low interest rates in my 30-year career.
The federal tax credit has provided a significant incentive to renters seeking homeownership, and the Obama administration has recently sweetened the deal for move-up buyers.
Despite the uncertainties of the economy, many potential buyers have been searching for months to find a home. Some of my clients have written more than a dozen offers, only to be outbid. Others have just not found the house that rings their chimes.
So here we sit — great rates, low home prices, tax incentives and willing buyers. It should be a crazy market, with sales off the hook, right? Well, sales activity is quite decent overall.
The Placer County Association of Realtors counts 419 closed escrows in October of this year. It was 2004 the last time October sales breached the 400 mark. Still, there are many potential sales that have not occurred and buyers are frustrated.
Realtors are also frustrated by the lack of inventory to show and sell.
Why is that?
As I look at a graph of the listing inventory for 2008 and 2009, it shows little fluctuation in the number of units available for sale month over month. Placer County has consistently hovered around 2,100 listings in 2009, slightly less than the average number of listings available in 2008.
Can we presume that the number of short sale and foreclosure properties has stabilized? We would hope so, but that may not be true.
It is possible, perhaps likely, that banks are holding back properties that are in default. One could draw the fast conclusion that they are manipulating the amount of inventory to try and keep supply and demand in balance.
But if that were true, why do we have so many buyers who want to take advantage of the tax credit but can’t find the house to fit their plan? I wonder if the banks are focused on keeping their income and losses in balance, not the supply-demand equation.
Month over month, quarter over quarter, lenders are posting income from various activities that generate profits. This income is vital to propping up their financial statements.
Those statements are weighed down heavily by mortgage losses and they can only afford to bleed so much in any given month. The people at the top of the food chain could be releasing properties into the market in batches, according to their overall financial health. This may be the biggest factor affecting the number of homes on the market.
Looking into the spring of next year, inventory may improve based on some of my research. Freddie Mac and Fannie Mae could release more properties into the marketplace, affording more choices to homebuyers.
With the tax credits expiring in June (buyers must be in contract by April 30), it is likely that activity will be fast paced and challenging during the first half of 2010.
David Ryland is the acknowledged dean of loan originators at Big Valley
Mortgage in Roseville. He has 30 years of experience as a loan officer, manager, trainer and mentor. He can be reached at dryland@apmortgage.com.
