The McPherson Group

 

As we all know there are many things contributing to the real estate slump, but two of the most prominent are the glut of homes on the market, there are a record 2.1 million empty homes for sale, and the fact that home prices appreciated so greatly in the first half of the decade. The law of supply and demand explains why home prices are still dropping. As the supply of houses continues to increase, the demand declines because consumers have more choices. Sellers therefore have to use incentives and lower prices to attract buyers to their property. The problem with the appreciation over the last 10 years is that it was so great that it will even take longer for the market to balance itself and reach equilibrium.

In 2006, Rhode Island saw a very small change in the median value of homes, but a significant drop in the number of sales. Compared to 2005, the median home price fell .14% to $282,500 but the number of single family homes sold fell 14% to just above 8,300. Condominiums saw a slightly larger decline in sales by 16% and the multi-family market suffered a great deal with 25% decrease in sales. Homeownership rates and vacancy rates, however, saw improvements from 2005 to 2006. Ownership rates increased by 1.5% to 64.6% and vacancy rates declined to 1.3%. Both of these statistic show that the economy is still stable, despite the leveling housing market. These things, along with the fact that the U.S. job market is still strong should help the market stabilize and start to rebuild in the near future.

The average rate for a 30 year, fixed-rate mortgage in 2005 was 6.0%. In 2006 the same loan would run at an average rate of 6.53%. These rising mortgage rates have caused some homeowners to default on their loans and forced them into foreclosure. Despite those issues, these rates are still significantly lower than historical averages making this a prime time to buy.

2006 saw some significant declines and a slight rise in mortgage rates, but things seem to be looking up for the future. David Lereah, the chief economist for the National Association of Realtors, believes that by 2009 and maybe even in 2008, we will see the market regain the peaks reached in 2005. Also, Celia Chen, the director of housing economics for Moody’s Economy.com, agrees with Lereah’s forecast that by 2009 we could see a complete rebound.

Even though it may be a little more difficult for new buyers to get loans because banks are less willing to take risks, this is the time to find a way to buy. If you can’t afford to purchase on your own, consider investing with a family member or friend. This opportunity to build equity at the low point of the market is something that may never come again. Whether you’re buying your first home or looking to invest in a second, start saving your money and thinking about your future before the market turns around and regains momentum.