Real Estate Rebound Of 2007 - Has It Already Started?

by : Eric Rogers

As we head into the first month of spring, there is no doubt -- real estate activity has increased significantly in many parts of the country. This leaves many to wonder: is this the beginning of the end of the real estate market downturn? The spring market is looming -- the big question is, what type of market will it be? 2006 is no longer new news for anyone. We hit a market downturn -- after 5 years of hot growth, it was bound to happen. But more important is how long will the downturn last? This factor is vital for anyone thinking of putting their home up for sale in 2007.

This fall, we saw prices drop in many places around the country off of strong values in 2005. This isn't a fact that homeowners are thrilled about. But it also has to be tempered by the exceptionally strong housing market of the previous 4 or 5 years. In many parts of the country, the depreciation of 2006 only erased a small portion of the equity that had been building.

The market didn't just affect pre-existing home sales. Builders faced similar difficulties in 2006. Many responded by slashing prices and offering increased incentives to entice buyers. In several cases, builders even chose to cancel planned developments to wait out the market downturn.

This fall, there were two trends that were apparent: 1. homes had to be priced competitively and in top condition to sell and 2. buyers tended to be very choosy and spent time shopping around. This second trend contributed to the longer-than-usual market times of many homes. It wasn't unusual for well-priced homes to be on the market a long time before selling.

There were several main factors that contributed to the market conditions we all experienced in 2006. Many experts feel that the Federal Reserve (Fed) was too aggressive with interest rate hikes. Often, changes in the interest rates take a while to reverberate throughout the economy. Instead of letting the market react to small interest rate changes, the Fed pursued an aggressive series of hikes.

Also, people are discovering that the media itself was largely responsible for a good deal of buyer uncertainty in 2006. For years, every "pundit" out there had been predicting a market crash and for the past 5 years or so, the market held strong. Then, the Fed started raising the rates and things started to cool. Of course, everyone with a microphone started piling on the idea of a "market bubble". Unfortunately what happened was "Chicken Little Syndrome" -- suddenly everyone thought the sky was falling and the market began its downturn - all while interest rates stayed reasonable and housing prices good.

The result was 2006. The next question is obvious: what's next? Here's where we have some good news. The general feeling among the true real estate experts -- the REALTORS who are out in the field in your local market day after day working -- is that 2007 will be the end of the downturn for many areas of the country. We are already seeing signs of this all over the United States. Here in the Midwest -- particularly the Fox Valley area west of Chicago, things have already started to pick up -- phones are ringing, buyers are buying and sellers have a very optimistic attitude about the next few months. In fact, many REALTORS are predicting a hotter-than-normal spring in 2007 that should end the downturn, signal a soft landing and return us to balanced growth in our local real estate market.

The biggest factor that should influence the spring market is the current pause (or end) in interest rate hikes. If the Fed holds steady to this policy going into spring, buyers should take it as a sign that the market is leveling out. Combine this with the fact that many buyers most likely held out towards the end of 2006 and we're looking at a larger-than-normal pool of buyers that should commit to a purchase this spring. Also, consider the fact that we are still sitting on a large inventory of unsold homes, some of which are priced very attractively. Basically we have a convergence of a large pool of eager buyers and a large pool of unsold homes at great prices -- the outcome should be a lot of activity this spring. So, how should all of this affect buyers, sellers and homeowners?

If you are a homeowner, 2007 should return us to a steady rate of appreciation. It probably won't be as great as from 2002-2005, but we should return to a fairly modest, yet sustainable rate of appreciation. Sellers should be particularly interested in a rebound this spring. What was a very difficult and trying 2006 market should turn into a much better time to put a home up for sale. The most important thing for sellers to understand is that the inventory of unsold homes should still be high this spring-but buyers should be buying. This points to several factors: sellers need to make sure their homes stand out of the crowd-both in condition and price. If this is done correctly and your REALTOR works hard at marketing your home, its time on market should be greatly reduced from 2006 levels.

Buyers should see the rebound as a last call of sorts. If you've held off buying-for whatever reason, it's time to commit to a purchase. In fact, buyers should really consider making a purchase in the next month or two in order to gain full advantage of the 2006 market conditions before they level out. Those that wait until summer or fall might miss the current buyer's market and find more competition and higher prices. Another benefit to buying in the short term is that interest rates are still relatively low and there are some great programs out there for buyers. While we all expect the Fed to hold steady with rates, we don't expect them to drop anytime soon. So the current rates might represent the lowest they'll be for the foreseeable future.

2006 will go into the books as one of the most difficult years for real estate in the past decade. Looking forward to 2007, we can expect the market to level out to a sustainable pace. Whatever your real estate plans are in the coming year, it will be important to keep track of current market conditions. If buying or selling is in your near future, it's important that you seek professional assistance to help you make the decisions that will benefit you the most.