The Market Two Years Later

I published the initial blog about Havertown in Delaware County in March 2007 and find it interesting looking at it today. The causes of the bubble and collapse of the Real Estate Markethave been verified by multiple sources over time and I would like to comment on today's market.

The downturn continues. Homes are on the market longer than ever and the number of listings that expire (the listing contract expires without an acceptable offer, usually 6 months) and withdrawns ( the seller gets disgusted and just pulls the home off the market because no offers are coming in) are up 200%. Prices have dropped about 15% in this area. There is over 18 months supply of inventory sitting on the market because the number of buyers has shrunken dramatically. Interest rates are low but only the top qualified buyers can get a mortgage so the first time buyers that drive the market are shut out. Without first time buyers purchasing there is no trading up. e.g. Owner 1wants to move out of their starter home to a mid sized home. They cannot sell their existing home. That means the mid sized home they were going to buy goes unsold. That means the mid sized home owner cannot move up to the bigger home they want. So you see the first time buyer controls the market and no one can move up.

In Delaware County lenders want a minimum of 10% down and some want 20% for a conventional mortgage. So a first time buyer on a $150,000 home needs either $15 or $30k down plus another 5% of the asking price to cover closing cost. They must also have excellent credit. Now realistically how many young people do you know that have that kind of cash reserves on hand? That is the problem in a nutshell. The alternative is FHA financing which is now doing about 70% of the market, up from 20% 2 years ago. They only require around 3.5% down but you still need excellent credit and closing cost. Even going FHA you are looking at around $13,000 cash on hand which still limits the buyer pool.

The market will take years to recover because it will take the first time buyers years to save that kind of cash. We do not save much as a society and our basic premise of buying a home has to change. There are no free rides on homes anymore and 100% financing is dead. I welcome all responses to this article. Thank You