Home prices have continued to drop this year to levels not seen in over a decade. This is happening locally and also around the country. This trend of prices dropping is obviously not new as this has been happening for the last few years now. However, what is new is that there are more buyers purchasing properties than we have seen for quite some time. It appears now that prices have dropped to a point where homebuyers have decided to jump off the fence and into homes.
The sharp increase in sales over the past year is causing an equally sharp decrease in the inventory of homes available for sale around the country. We are especially seeing a sharp decline of housing inventory in cities that have been hit the hardest by the foreclosure crisis. For example, in the last year Miami's housing inventory has declined by 24%, Detroit's housing inventory has dropped by 17%, and Phoenix's housing inventory has dropped by 10%. Many other major metropolitan areas have seen simalar declines in the amount of homes for sale as well.
This is good news for both the housing market and for our nation's economy as a whole. Many leading economists say that the decline of housing inventory, especially the decline short sale and foreclosure properties available for sale, is key step to the recovery of the housing market. The logic behind this is that as the supply of homes decreases, the competition among buyers for existing properties will increase thus driving up home prices again. Many real estate agents, including myself, and many buyers out there will make the argument that this is already happening.
Right now there are properties for sale that are great deals, and there are also properties that are not great deals, and there are properties that are somewhere in between. Many of the great deals out there are foreclosure properties and short sale properties. What i'm seeing out there is that the great deals are only on the market for a short period of time. Everybody is looking for a great deal right now, so when a great deal pops up for sale you usually have several offers on it within a few days after the property is initially put on the market. There is a large demand for the good deals right now. The cliche phrase i'm hearing from buyers these days is...you guessed it..."I'm looking for a great deal." As the inventory of these good deals is starting to dwindle, the competition is among buyers for these good deals is increasing. That is what I am seeing first hand.
As Mike Shannon, a real estate agent in Detroit, said "It’s like a feeding frenzy when a home goes on the market now,...We’re getting a few dozen offers on some homes in a matter of days.”
A lot of the people buying up these great deals are investors who are paying with cash. The banks are paying them very low interest for their cash deposits, so they are moving their cash from the bank into real estate where they can buy a property for cheap and rent it out earning a much better return on their money than their banks are paying them. In Tampa this past March, 35% of the homes that sold were bought and paid for with cash. In a normal market about 10% of home transactions are cash deals. With that being said, it looks like the cash paying investors out there are helping soak up the inventory of homes. And I digress: For this, we thank you cash paying investors for your contribution to our nation's housing and economic recovery! That's true capitalism at it's finest working before our eyes...and working a lot better than the government programs out there designed to help the housing market I might add.
Some economist warn that the worst may not be over though. Some economists are claiming that banks are still holding hundreds of thousands...maybe millions of foreclosure properties that they have not released onto the market yet. They say that the recent problems that banks and other financial institutions have had with foreclosures (i.e. not property foreclosing on properties, having to reforeclose on properties, clearing up title issues, ect...) have slowed down the bank's foreclosure process over the last few months, and the slowdown in the foreclosure process is the reason for the decline in the housing inventory across the country. The economists warn that when the banks start releasing the properties onto the market again at the pace they were before the foreclosure scandals and problems were uncovered, the inventory of properties will increase again, and prices will decline even further.
In conclusion, the bottom line is that many of the properties on the market today are distressed properties (short sales and foreclosure properties). Roughly about a third of the properties for sale are distressed properties. Our housing market and our economy will not recover until these properties are purchased and our housing inventory returns to normal levels. Right now it appears we are headed in that direction. If the economists who think that we are going to have another wave of foreclosure properties hit that market are correct, than this just means that the housing market and the economy is just going to take longer to recover. Of course, it also means that i'll have more distressed properties to sell before things are back on track...my own little contribution to the recovery of our housing market and the economy.