Since the housing bubble burst a few years ago, the real estate market has been struggling to get back on its feet. The days of easy money and no-down payments seem to be over, at least for now. There is a glut of foreclosed homes on the market, and there is also a huge shadow inventory of homes that are not yet for sale but are in some stage of the foreclosure process.
In particular sales of newly constructed homes have been hit hard. The number of new homes sold in the U.S. in 2010 was 322,000, and this number is only about half of what would be considered normal. It was the lowest sales figure in almost fifty years of record keeping. Home builders are having difficulty competing with low cost distressed properties. The discount for a distressed home as compared to the price of a newly constructed home was a whopping 28% in 2010.
It is only reasonable that a new home should command a premium over a distressed property. New home builders will typically offer warranties on their construction work and the appliances that come along with the house. Foreclosures, on the other hand, are sold as is, and banks offer zero in the way of guarantees. Anyone thinking about buying a distressed property in order to take advantage of a low price needs to have a home inspector thoroughly check out the house before completing the transaction.
Experts expect the number of foreclosed homes to be higher in 2011 by about 10-20%. If anything this would indicate that the factors dragging down the housing market might even get worse than they are now. There is one major factor that is about to change that could affect home buying decisions, but exactly how this is likely to play out is still an open question.
The most important factors for home buyers to weigh are the price of the property being considered, and the level of mortgage interest rates, unless the purchase will be made with cash. Home prices have been dropping in recent months, and most experts think this trend will continue.
Mortgage rates are another matter. Many financial experts think that long term interest rates in general will go up later in the year. The main reason for this is that the Federal Reserve is scheduled to stop its purchase program of $600 billion worth of government debt. The goal of this program was to keep interest rates down and hopefully stimulate the economy. When this program ends long term rates, which of course include home mortgages, will no doubt rise. Will this stimulate potential buyers to jump in and make home purchases before they miss out on very low rates? If so, how long will be buying last? If rates go up too much, this could further put the brakes on any recovery in the housing market.
In particular sales of newly constructed homes have been hit hard. The number of new homes sold in the U.S. in 2010 was 322,000, and this number is only about half of what would be considered normal. It was the lowest sales figure in almost fifty years of record keeping. Home builders are having difficulty competing with low cost distressed properties. The discount for a distressed home as compared to the price of a newly constructed home was a whopping 28% in 2010.
It is only reasonable that a new home should command a premium over a distressed property. New home builders will typically offer warranties on their construction work and the appliances that come along with the house. Foreclosures, on the other hand, are sold as is, and banks offer zero in the way of guarantees. Anyone thinking about buying a distressed property in order to take advantage of a low price needs to have a home inspector thoroughly check out the house before completing the transaction.
Experts expect the number of foreclosed homes to be higher in 2011 by about 10-20%. If anything this would indicate that the factors dragging down the housing market might even get worse than they are now. There is one major factor that is about to change that could affect home buying decisions, but exactly how this is likely to play out is still an open question.
The most important factors for home buyers to weigh are the price of the property being considered, and the level of mortgage interest rates, unless the purchase will be made with cash. Home prices have been dropping in recent months, and most experts think this trend will continue.
Mortgage rates are another matter. Many financial experts think that long term interest rates in general will go up later in the year. The main reason for this is that the Federal Reserve is scheduled to stop its purchase program of $600 billion worth of government debt. The goal of this program was to keep interest rates down and hopefully stimulate the economy. When this program ends long term rates, which of course include home mortgages, will no doubt rise. Will this stimulate potential buyers to jump in and make home purchases before they miss out on very low rates? If so, how long will be buying last? If rates go up too much, this could further put the brakes on any recovery in the housing market.
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