OfflineUsing the word “engine” instead of “boom” in the title is intentional. While much of the media may like to continue the “boom and bust” discussion and the possibility of another mini-crash, it’s really more of a slowing in activity that’s been too hot over the last dozen months or so. Monthly pending home sales just took the largest monthly dip since the home buyer tax credit expiration in 2010, prompting some to predict the boom is over.
That was a government-induced drop in sales, and this one is also somewhat the result of government or quasi-government influence. The Federal Reserve’s hint of a taper in Quantitative Easing ending sent mortgage rates on a run up. The fact that the taper never happened couldn’t stop the drop in pending sales, and the government shutdown was in the mix as well.
The September index of pending home sales slumped 5.6 percent, which exceeded all estimates in a survey of economists. This was the biggest drop in more than three years. There was a drop in August as well of 1.6 percent. The index is at its lowest level this year. Market prices have been propped up since 2009 due to artificially low inventory, easy money from the Fed, and investor buying pressure.
Since 2009, mortgage rates have been dropping every year. People have been conditioned to low rates and easy mortgage money, so the recent increases in rates are having a disproportionate effect on pending sales. Refinancing activity has plunged with rate increases. Refinancing has been booming over the past three or four years, and banks are now feeling the loss of this activity and are laying off employees.
Even the hot California market is showing signs of a slowing in price growth and sale numbers. It’s definitely an engine that seems to be running out of gas, but the market doesn’t really seem to be a boom about to bust.
Hey DG Mod,
I'm not sure what strategies you use, but the info you recited, along with some information I saw earlier about financing becoming harder to obtain for some, tells me that buy and hold for rentals and lease purchase properties may be the way to go. Of course, every area is different. And I know the profit to be made will happen at a slower pace, but it may be something to consider. Or you if you don't want or can buy and hold right now, maybe bird dogging, assigning or wholesaling (using hard money lenders) some good properties to buy and hold investors may work. And don't forget to look at your multi family properties as well.
A drop in closed sales should not send our hearts racing. As prices are returning to pre-recession levels, investors (who have been a large help in keeping the R/E market afloat) are going to back away from the feeding frenzy. Compound that with a super low inventory in most areas and you will find an inevitable drop in sales. As sellers feel more secure and are less underwater, they will no doubt enter the market and stabilize things even more.
There is another possibility to the September drop in sales.
The first and last quarters of the year are always slower than the 2nd and third. Many times dramatically slower.
People seem to want to look for houses in the warmer months. I know this isn't as big an issue in the warmer states, however there is other factors that are involved. The biggest seems to be kids going back to school. Many people have already moved so their kids can be enrolled at their new school. They don't want to uproot the kids after the school year starts.
Many people want a break after the busy summer months of vacations and other things inherent to the warmer months.
A positive of this time of year, is that historically there have been more good investment opportunities come on the market. Especially REO's. Banks want them off their books by the end of the year.
This hasn't been as prevalent the last three or four years because there was such an extraordinary amount of foreclosures, but in the twenty plus years I've been in real estate, it has been the norm.