According to the National Association of Realtors report today, existing homes sales rebounded strongly in September. Sales were up 10% in September 2010 to a seasonally adjusted annual rate of 4.53 million units, a substantial increase from July's rate of 3.84 million units - a 15 year low. While these numbers are positive, sales have declined 37.5% from the peak in September 2005 at 7.25 million units with home prices down 28% nationally.
Do these numbers point to a coming rebound or is it simply "fools gold"? The answer to both questions is yes. This substantial change in direction in the existing homes sales trend points to the fact that the appetite for Buyers and Investors looking for a "good deal" has improved to the point where they are closing on more transactions due to the vast number of bargains available on the market. However, there is still a great deal of work that must be done in the overall economy for the real estate market "bottoming process" to be completed.
The interest rate market for mortgage loans has currently reached record low levels that we have not seen since Harry Truman was President in April 1951. The US Government has provided extensive, and necessary I must add, stimulus to "bail-out" financial institutions simply too big to fail and has provided financial incentives with the previous Home Buyer Tax Credit to Buyers urging them to get back in the market. All of this and the economy is still struggling to employ US workers, 14.8 million people are still unemployed or 9.6% unemployment rate, home prices continue to decline in value and mortgage delinquencies continue to rise. According to the Mortgage Bankers Association recent report, applications to purchase homes are down 29% from this same week in 2009, yet interest rates and home prices are more favorable for prospective Buyers and Investors.
All of the evidence tells us that we are not out of the woods yet. There is still lots of work to be done. As I have mentioned in previous blog posts, the risk conscious Buyer and Investor should be looking to the REO (Bank Owned Homes) arena for real estate investments that provide the greatest opportunity for positive return on capital invested and the best value for your dollar. Traditional non-distressed inventory (new and resale homes) will still feel the continued "price-depressing" effects from the distressed inventory that will continue to be a fixture on the market for the foreseeable future. If you have a long term time horizon and are looking for a "move-in" ready property, than there are some good opportunities available but your return on investment may be somewhat muted until the market has worked off the current and future inventory. Current data shows current inventory levels at 10.8 months of supply, not including future distressed inventory (Short Sales, Foreclosures and Bank Owned Homes) yet to hit the market. Since distressed inventory now account for 1 out 3 transactions being completed in 2010, their impact on values on non-distressed inventory can't be ignored or discounted.
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