The era of everyday lower prices appears to be ending, at least according to recent data from real estate search firm Trulia.com, which reports a new low of 19% of listings currently on the market experiencing a price cut as of March 1, 2010 .
Trulia.com's track record isn't particularly long – it dates back to April 2009 – so we don't want to read too much into the news, but it's worth noting that it marks the first time price reduction levels have dropped below 20%. To spin things positively, we could say that over 80% of new listings aren't reducing prices.
It makes sense that price cutting is becoming less necessary. Most sellers these days are grounded in the new reality: they understand that they can't sell their home for what it would have sold for in 2005 or 2006, so they're no longer tethered to those extinct price points. Homes listed for sale these days are priced to produce an actual sale as opposed to being priced in a quixotic attempt to reclaim a sunk cost.
Of course, listing prices could come under pressure by the expected increase in foreclosures. The Washington Post reports that about 5 million to 7 million properties are potentially eligible for foreclosure, but have not yet been repossessed and put up for sale. The Post also reports that it could take nearly three years for all these homes to clear the market.
That's a worse-case scenario. So far, that's not how the market is unfolding. RealtyTrac reports that there were foreclosure filings on 308,000 homes in February, but that's a 2% decline from January. REOs were off nearly 15% from their peak of more than 92,000 in December 2009. Moreover, 60% of the activity was concentrated in six states: California , Florida , Michigan , Illinois , Arizona , and Texas . Going forward, we think stable prices and gradual appreciation will be the norm, despite the foreclosure issue and the likelihood of loosing the federal homebuyer’s tax credits.
We also think stable and appreciating mortgages rates will be the norm. Yes, rates continue to hold steady, like they have for the past two months, but they're not going lower. What's more, March 31 marks the Federal Reserve's expected withdraw from the mortgage-securities market. Does that mean we will be looking at 6% 30-year fixed-rate mortgages this time next year, as many pundits predict? We can't say for sure, but we wouldn't be surprised to see 5.5% by summer.
This information was taken from weekly news by Jim Belote, Union Mortgage. Thank you Jim.