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Ah the “housing market”, every article I write centers around it. It’s the 800 pound gorilla that stalks me everywhere I go. I used to get asked a variety of questions as I made my way through IGA… “How are the kids?”… “Why did you paint your office prison gray”…”How much did you pay for heating oil this month?”…not anymore. Now, it’s all about Delta’s housing market and what is going to happen this year with the upcoming elections and looming recession.
I feel bad that I can’t give a more definitive answer to those who ply me for industry secrets and forecasts, but it’s really a guessing game as to what is going to happen this year. What I do know is that our market is undergoing continuous change. While many areas of the country are bracing to hit bottom as housing prices plummet and foreclosures climb, Alaska has not seen that kind of volatility. Housing markets throughout the state have cooled, but it’s not a deep freeze…yet. The cost of construction, primarily materials and the high cost of shipping, will most likely insulate us from the freefalls that folks down in America are experiencing. Plus, Alaska Housing Finance Corporation and other Alaska lenders avoided the lure of sub-prime loans and variable interest rates and are still financially sound. Foreclosures are rare around here.
However, the credit crunch has definitely bit down on us. Lenders are wary and extra cautious about handing out money. Credit blemishes and less than stellar credit scores will now keep you from getting financing, even at a higher interest rate. Believe it or not, this is due in part to lower interest rates. Falling interest rates cut into bank profits…so they tighten up. There are lots of buyers out there, but willing lenders are disappearing. My best advice to a potential buyer is to get a pre-approved loan amount before you start the house hunting process. It will save wear and tear on your shopping psyche, once you find your dream home.
The other interesting thing about the housing market is on the selling side. I recently read an article by a professor of behavioral finance…yes their really is such a thing as a behavioral financing...alright, I admit, he’s out of California, but what his research showed was true in my experience. Weakening housing markets often times result in less flexibility on the seller’s side. Fearing the emotional pain of taking a monetary loss on their home cause some sellers to dig in deep, convincing themselves that there is a buyer out there somewhere, who is going to really, really wants their house regardless of price. Often times, this fear of loss is unrealistically based on what their house would have been worth if they had put it on the market while things were still hot. Even though the house could still be worth more than what they paid for it, the “what I could have gotten for it last year” scenario is all too often paralyzing and results in a home incorrectly priced for the market. These homes sit on the market for an average of two years or more, if they sell at all.
The other emerging trend in our local market is the explosion in inventory. Typically, weakening housing markets are set in motion by expanding inventories across the price spectrum. This is certainly true in Delta. Only a few years ago, there were one or two houses in the median $150,000 to $220,000 price range and they got snapped up fast. Now, there are numerous choices in that range and buyers feel much less pressure to jump in and grab. There are also lots of choices above and below the median price as well. It’s the old “supply and demand” rule. Where the buyer of yesterday struggled with the plight of few if any choices, today’s buyer can have difficulty in picking one from the many. Funny how things can turn on a dime…or should I say a percentage point.
With that said, now is really a great time to buy. Historically low interest rates, lots of available quality built homes and excellent variety in styles, size and prices make for home buying at its best. Now is the time when investors move into the market and buy up available bargains, turning them into rentals until the market picks back up. Housing markets typically run on a 4 year cycle, so this current climate may be around for a while.
My advice to those looking to buy is to get a pre-approved loan amount. It’s free and will give you a good idea of your realistic buying power. If you are denied financing, use the information from that process to get your credit and finances in order. It may take some time, but it can be done.
My advice to sellers is do your best to forget about what your house used to be worth, those high roller days are gone for the foreseeable future. Trust the advice of your agent, set a price appropriate to the market and prepare to be patient and flexible…a tall order for anyone, I know, but it’s one that will serve you the best.
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