Low mortgage rates, bargain prices aren't enough
In many ways, 2011 has been a great year for buying a house. The trick has been convincing buyers that it's really true.
With the year winding down, it's clear that months of continued instability in the residential real estate market -- and the job market and stock market as well -- have instilled a lingering sense of uncertainty among potential buyers, despite mortgage rates that are lower than ever, and prices that are a relative bargain compared with a few years ago.
Partly, the caution among buyers is grounded in reality -- with prices continuing to fall, as they did in October across much of the state, there remains a risk that a purchase could quickly lose value, especially with so many "distressed sales" still hitting the market.
But some of the so-called "soft spots" in the Delaware market also exist because of misconceptions, industry insiders say.
Chief among them is the exaggerated belief, fostered by the media, that banks simply aren't lending, said Ann Riley, president of Gilpin Mortgage Company. While lending standards have tightened, and satisfying lenders' paperwork requirements has become quite an ordeal, attractive loan programs such as FHA mortgages and state first-time buyers assistance remain.
"There's a lot of other things out there that people tend not to talk about," Riley said. "I think the negativity is starting to feed on itself. ... I certainly think there are people who are on the sidelines because they worry they can't get financing, so they don't even ask."
At the same time, it's also clear that qualifying for a traditional mortgage requires far more effort than it did during the boom years, real estate insiders say. That's as it should be, industry veterans believe, but it also has complicated the market's recovery.
"They want to make sure everything is perfect," said Judy Dean, a RE/MAX realtor and immediate past president of the Sussex County Association of Realtors. "That's what I think is frustrating to a lot of people."
As a result of these and other factors, home sales were relatively flat compared with 2010, pushing hopes of a broader recovery into next year. Sales prices, while showing signs of more stability and rationality, also continue to slip.
That's largely because of the lower values realized in sales of foreclosed and other "distressed" properties, Realtors say. In Kent County, for example, 14.2 percent of deeds filed in 2008 were either the result of sheriff's sales or a bank-owned property. In 2009, that rose to 22.2 percent, climbing to 30 percent in 2010. So far this year, it's 42.2 percent, said Cynthia Witt, a statistical analyst and co-owner of Woodburn Realty in Dover.
Nationally, distressed sales, which include foreclosures and short sales in which the lender agrees to a transaction for less than the balance on the mortgage, accounted for 28 percent of the total in October. At the same time, sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers.
"I think there's a lot more optimism than last year, but there's still a lot of distressed properties on the market," Dean said.
Last year at this time in Kent, the average sales price was $200,830. This year, it's $194,275, Witt said.
Where there is strength in the market, it tends to be focused in lower- and higher-priced properties, she said.
"What's slow is the mid-priced homes, because people are buying new homes over existing homes" to get amenities such as walk-in closets and bountiful bathrooms, Witt said.
Among observers, there's a sense that the real estate market -- like the economy -- will take longer to recover than people had hoped.
"The housing market is stabilizing, but it has a long road to a full recovery," said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. "There are still a lot of depressed properties in the pipeline that will hit the market, and demand likely needs to strengthen above a 5 million annual rate to absorb the overhang of unsold homes and alleviate the downward pressure on prices."
Nationally, the backlog of unsold homes would take at least eight months to clear. In the meantime, Europe remains mired in a debt crisis, the United States can't agree on how to fix its reliance on deficit spending, and equities markets remain nervous over the whole predicament.
"There is very little consumer confidence, and that's not helping, either," Riley said. "People don't want to go out and make a purchase when they don't feel good about the economy."
Ultimately, the real estate market's recovery will rely on the country resolving its political strife as well as its economic challenges, Witt believes.
"How can a young teacher buy a house if education money is going to get cut next year? There's just no certainty there," she said. "I think that uncertainty is at the heart of things now."
That's largely because of the lower values realized in sales of foreclosed and other "distressed" properties, Realtors say. In Kent County, for example, 14.2 percent of deeds filed in 2008 were either the result of sheriff's sales or a bank-owned property. In 2009, that rose to 22.2 percent, climbing to 30 percent in 2010. So far this year, it's 42.2 percent, said Cynthia Witt, a statistical analyst and co-owner of Woodburn Realty in Dover.
Nationally, distressed sales, which include foreclosures and short sales in which the lender agrees to a transaction for less than the balance on the mortgage, accounted for 28 percent of the total in October. At the same time, sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers.
"I think there's a lot more optimism than last year, but there's still a lot of distressed properties on the market," Dean said.
Last year at this time in Kent, the average sales price was $200,830. This year, it's $194,275, Witt said.
Where there is strength in the market, it tends to be focused in lower- and higher-priced properties, she said.
"What's slow is the mid-priced homes, because people are buying new homes over existing homes" to get amenities such as walk-in closets and bountiful bathrooms, Witt said.
Among observers, there's a sense that the real estate market -- like the economy -- will take longer to recover than people had hoped.
"The housing market is stabilizing, but it has a long road to a full recovery," said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. "There are still a lot of depressed properties in the pipeline that will hit the market, and demand likely needs to strengthen above a 5 million annual rate to absorb the overhang of unsold homes and alleviate the downward pressure on prices."
Nationally, the backlog of unsold homes would take at least eight months to clear. In the meantime, Europe remains mired in a debt crisis, the United States can't agree on how to fix its reliance on deficit spending, and equities markets remain nervous over the whole predicament.
"There is very little consumer confidence, and that's not helping, either," Riley said. "People don't want to go out and make a purchase when they don't feel good about the economy."
Ultimately, the real estate market's recovery will rely on the country resolving its political strife as well as its economic challenges, Witt believes.
"How can a young teacher buy a house if education money is going to get cut next year? There's just no certainty there," she said. "I think that uncertainty is at the heart of things now.
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