How many of us heard our fathers say, "you never lose money in real estate." Well, that is no longer true. Recent trends have shown quite the opposite. Recent trends have show it is a buyers' market. This means buyers are not buying the first house they see. It means buyers are weighing their options more closely and being less emotional at the time of purchase. It means real estate agents that used to show one or two houses to make one sale, now have to show eight houses to get one sale.
The lack of sales means there will be less real estate agents in the next twelve months. A real estate agent that depends on real estate sales for primary income may not survive the next twelve months. Another trend is buyer's behavior is changing. Buyers are decreasing their use of leverage. Buyers used to buy a larger house than needed because the more a buyer levered up the higher the return. Now buyers are searching for affordable houses and seeking houses with prices under half a million dollars. Therefore, houses with prices over half a million dollars are either not being sold or being reduced in price.
Buyers are also looking at the final cash flow of a house. Buyers used to look only at the price of the house and assume as long as they could make mortgage payments then they could afford the house. That has all changed at local governments try to raise revenue through property tax increases. The mortgage payment may only be half of the monthly cost of a house. Real estate taxes, insurance cost, and regular maintenance may require as much or more cash flow than the mortgage payment. Interest rates a slowly going higher.
Six months ago a thirty year fixed mortgage could be found for 4.75%. Now a thirty year fixed mortgage is about half a percent higher. Interest rates are slowly grinding higher. As long as the Us government continues to deficit spend, interest rates will be trending higher or at least not going any lower. Available credit has also decreased. Lack of credit is pushing some sub-prime borrowers out of the market which decreases demand. Lack of credit is forcing even prime borrowers to increase down payments. The increased down payments further reduce the amount of leverage in the market. As leverage decreases in the market prices compress.
There are a few bright spots in the real estate market. Underlying demand is still there for housing. People need a place to live. Properties for single families under the half a million price will continue to show demand. Investment properties, expensive properties and second home properties will continue to show weakness.
Overall, real estate trends all point to lower prices. Interest rates, insurance cost, increase property prices, and reduction in available credit are all having negative effects on real estate prices. Once credit institutions start to increase the amount of available credit in the market, prices for real estate will start to go higher again. Until that happens, prices are still trending lower.
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