Inhabit Index for January 2008

27 02 2008
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Looking back at January, the index rose 5 percentage points to 15%. Current market conditions are still favoring buyers throughout the Austin metro area.  The inventory of homes on the market has grown to nearly 7 months; I expect a further increase as we approach the heat of the selling season. The good news is that new construction starts are down, which should help mitigate an oversupply.

So if my prediction for a growing inventory holds true, any future increase would give Austin buyers a larger pool of homes from which to choose. Advantage buyer. However, knowing that, many buyers and sellers are waiting it out in anticipation of such a development. I wouldn’t advise either side to continue with such a strategy.

Ok. I know what you’re thinking. But before you pass that last sentence off as biased-Realtor fodder, you might want to seriously consider it, lest you find yourself in this scenario put forth in a recent Time magazine article.

 Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at the recent rate of 5.5%. Monthly principal and interest come to $994.31 Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you’d have saved nothing [in your monthly payment].

Now, the scenario above assumes a price decrease of 10 percent. Currently, that isn’t applicable to Austin as we are one of the few remaining markets where prices are appreciating. So, my point is regardless of what home prices do in the coming months, the cost of money, specifically mortgage rates, will most likely go up. In fact they’re on their way up as we speak. Just last week, many people missed an opportunity to lock in when rates were around 5.25. Less than 3 or 4 days later they are over 6 percent and projected to keep going up in the days ahead.

 So what can a buyer take from my observations? 1) Prices are unlikely to fall as they are in other markets, all other things being equal. 2) Interest rates have nowhere to go but up.

And sellers? 1) Home prices are still appreciating in many neighborhoods throughout Austin. 2) But when interest rates increase, the money supply tightens and could translate in to fewer potential buyers. 3) If you intend to move-up, that is sell your current homes and subsequently purchase a larger home, you will likely pay more in price as well as interest. So anything that is gained by waiting may be offset by rising financing costs.

By no means am I promoting or advocating uninformed and hurried decisions on the part of buyers and sellers. I point out the above simply to illustrate the potential cost that will be paid by those who have to make a decision but are wavering in the process.

To help you make up your mind, here’s a more local view of which MLS areas are currently favoring buyers vs. sellers:

Inhabit Index by MLS Area for January 2008

Related Post: The Inhabit Index: How to Know When It’s a Buyer’s or Seller’s Market

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