I recently read an article by blogger, Steve Harney, author of Keeping Things Current, a real estate blog that focuses on national real estate trends. The article points out the potential for a national spring market dip in real estate prices as banks and fannie mae, begin to unload the properties they’ve been “stock piling.”
This logic makes sense when you consider simple supply and demand. Just as gold bars and diamonds are worth more when there’s less of them, real estate prices flucuate based on how many homes are on the market. The more available properties, the less those properties are in demand, therefore price drops. The wrinkle in todays scenario is the largest holders of those properties are: Bank of America, Fannie Mae and Wells Fargo – all of whom have stated they predict home prices to fall this spring.
Here’s an excerpt from the article:
”We are now seeing that a certain segment of those projecting future pricing have two things in common:
1. They believe prices will fall rather dramatically in the first half of 2011
2. They have control of the flow of discounted properties to the market
Predictions for the first half of 2011 by firms that fall in the above category:
• Bank of America projects that prices will fall 3.7%
• Fannie Mae predicts that median prices will drop $12,500
• Wells Fargo reported that they feel home prices will drop 8%
Not a coincidence
We are beginning to realize this is not a coincidence. The organizations which should best know when the surge of foreclosures will be released are saying house prices will be hit the hardest in the first half of the year. We are not asserting that there is anything devious in what we have found. We are just reporting that those who have control over the flow of distressed properties must think/know that inventory is about to be released. Why else would so many of them be predicting a sharp decline in home values in the next 120 days?” see the full article….
How will West Michigan fare? We are still fortunate enough NOT to have experienced past bubbles in the market that caused sky high prices and in turn lead to higher percentages of foreclosures. We are still exposed to foreclosures coming on the market from these three major players and others – so this is a very real scenario for West Michigan (but perhaps not to the level that other areas in the nation may experiece.)
What can we do? First off, always remember real estate goes in cycles and until you’ve acutally sold your home and signed on the dotted line, your “losses” are only paper losses – not acutal lossess. At this point consider your situation VERY realistically: Do you HAVE to sell? If you don’t have to sell and you want to sell, are you willing to play to where the market is? If the answer to this is “yes contingent upon your next property being a GREAT deal,” then you’re probably taking the right action by selling. If your answer is “no” the $15-30k I’ll be “loosing” now is not worth the $50-$75k I’ll be gaining on the next property, or if you simply don’t have the financial means to cover your losses, it’s time to leave the sign out of the yard for a while and find ways to improve your current home: add squarefootage, etc.
The Silver Lining: I eluded to it in the above paragraph for those who are looking to move up: it’s a sliding scale, and frankly to a point, the more house you buy, the more money off you are going to see. We may see a larger number of homes in the $250-$400k range hit the market this spring and summer in forclosure as those owners typically had savings to prolong their foreclosures, but more are loosing the battle so their homes are now coming on the market (wait where’s the silver lining, John?…) Here you go: If you’re positioning yourself to be in the market for a new home over this next year, or if you are a savvy investor looking to capitalize on the market – 2011 is going to be a wonderful year for you! The mix of low interest rates combined with higher needs for rentals, combined with another market correction, means the mix is right for action.