As referenced in yesterday's "
My hope for the 2009 local housing market" post, the quantity of home sales has fallen 44% over the past 4 years (between 2005 and 2008). At the same time, values haven't significantly fallen, and thus I tried to answer the question of
why we haven't seen a big shift in home values. But one question remains ---
why have we seen such a larger decline in the number of home sales!? Here are my thoughts, though I welcome your insights as well...
- Lower appreciation rates render short-lived buyers powerless. Home values increased dramatically between 2003 and 2004, and likewise between 2004/2005 and 2005/2006. That trend drew a lot of would-be-renters into the home buying market, because they saw the opportunity to buy a home with the ability to sell it as soon as 12-18 months later and make a profit. These buyers would typically rent because it would be too expensive to sell 12-18 months after buying --- but with such rapidly escalating sales prices, this became less of an issue. With a one percent drop in sales prices between 2007 and 2008, this type of buyer is clearly back on the sidelines again --- it doesn't make sense to buy for the very short-term.
- Higher home prices leave many first-time buyers out in the cold. With home values increasing so rapidly over the past six years, many buyers who would have qualified several years ago (based on their current income) no longer qualify to purchase. Just six years ago, brand new two-story townhomes in Harrisonburg were selling for $99K. These same townhomes are now selling for $160K (a 61% increase) but salary/wages have not increased by 61% in the same time period. Thus, fewer buyers qualify to buy today because home values increased faster than salaries and wages.
- Home prices and loan programs cripple investors. Just a few short years ago, there were quite a few real estate investors actively buying real estate in our market. Most of these investors have lef, or are holding back on their investments right now. Home values have increased significantly more quickly than rental rates over the past 5-6 years, which affects an investor's bottom line. Furthermore, loan programs for investors have grown increasingly stringent, creating higher interest rates on an investor's already low rate of return.
- Transplant buyers are stuck in their markets of origin. Some segment of our buying market has always been those moving from other parts of the state or country. Many of these "markets of origin", however, have been hit very hard by dropping home values. Thus, would-be-buyers in our market are often waiting on their other home to sell before they can buy in our market.
What have I missed? Why else have we seen a 44% drop in real estate activity since 2005? Recent Articles:
