Is a Real Estate Housing Bubble coming to Your Neighborhood?
Yesterday, the NAR released it PHSI, which I believe is the best leading indicator we have of what the real estate market is actually doing. I created a chart, which I will continue to update on a monthly basis for you (subscribe to my RSS feed to receive automatically).
What is interesting is that the actual drop in Pending Home Sales Index should have been lower than the reported 5.5% national drop over last year but the South came to the rescue. As you can see from this chart, the area’s real estate markets that most people are concerned about – West & Northeast, have fairly sharp declines. I believe The South may be bucking the cooling trend due to the “Katrina” effect on housing, limited supply, high demand. I’m not sure why the Northeast had a slight increase (maybe someone can comment).
As mortgage rates continue to climb and mortgage underwriting standards tighten, I suspect you will see bigger drops in the pending home sales index, which lead to drops in the actual existing home sales, then finally leading to drops in actual home prices. Hence the reason why the NAR states that there is a “cooling” trend and not a “pop”. As time progresses you should see their statements change. The most important factor is mortgage rates, as is demonstrated for this chart I posted yesterday. You can clearly see the inverted dance between mortgage rates and home sales.
The main factor that could cause a sudden bursting of the real estate bubble is jump in mortgage rates of .5% or more (for the West and Northeast) in combination with the tightening of mortgage underwriting guidelines on the “stated income” and “interest only” loans.
3 Comments:
Hi Jessie, For what it's worth I recieved an snail mail yesterday by a local (Portland) real estate group touting a 1% sales commission (some conditions) for new clients. I've never seen anything like this, but it must be a sign of the evolving market and change in the way that realtors are perceived.
Hello Will, thanks for your comment. I think if you read the fine print you will see that this is a play on words. A) It's probably 1% for their services but you are required to still pay 2-3% for the buyers agents, for a 3-4% total costs (still a significant savings but not ground breaking - may be more a sign of competition than a new business model) or B) 1% and you must sign an exclusive listing agreement, so that only they can sell the home, limiting your exposure and cooperation from the rest of the real estate community.
Definately the 1% is a catch all. I own a REALTOR firm and I know well, that the market is changeing. We still list homes at 6%-7% but obviuosly, that will change. I believe the best solution, as far as I am concerned is to offer a cafeteria/buffet of services and then proceed from there. If any property is listed on the MLS system... everyone has to agree to a 3% coop fee. This was discussed at our local board several years ago and I actually served on the investigation committee. This was what we decided. We would allow FSBO to list on our MLS, if they agreed to the three percent coop fee. We further agreed that we would not show their listings, but it would be a fantastic method for running a daily report and begin a "targeted" marketing campaign. This would reduce our blanket advertising budgets and allow for the higher ROI of targeting those really wanting to sell. Honestly, it worked great and still does.
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