WHAT IS A “SOFT” REAL ESTATE MARKET
A “soft” real estate market is one that doesn’t respond the way we want it to when we are in need of selling our house.
Few buyers, many sellers, foreclosures, bank inventory sales depressing prices, and also weakening prices are common situations in this market being experienced all across the USA. The “sub-prime” or “questionable loans” made in the last few years have spawned a complete meltdown of financial services based on them, housing prices, home values, the ability to sell many properties, and a host of financial problems for both individuals, governments at all levels, and businesses. Any business related to real estate today, especially single family real estate (the homes we live in and enjoy), has been affected. Construction of new homes is down, jobs in that sector are reduced or missing, prices and sales of new homes are down in price, low in volume, re-sales of existing homes are at very low activity levels, inventory of houses on the market is at record highs, real estate agents are leaving the business, title insurance business is off in volume, loan originations are very low, interest rates still remain low but loans are more difficult to qualify for and get, time to close escrows is getting longer, and the government is busy looking at laws and ways to “do something about it”.
What is really happening, and how does it affect us?
Many agents report that they are helping sellers and buyers in dealing with the foreclosure problem from both sides. Some are helping the sellers work with the banks, and some are helping buyers get through a “maze” of bank rules and regulations attempting to purchase foreclosed properties. Many appraisals which are the basis of bank loans are coming in below expectations and forcing a number of decisions on the part of both buyers and sellers. Many people who specialized in “fixer upper” properties do not seem to be active like they were due to possible fear about reselling the corrected properties. Loans don’t seem to be the problem for credit worthy buyers. Most report being able to get loans, but many are still waiting thinking that prices and values are only going to go lower, and they hope to make a better purchase later on.
A “soft market” then is a combination of factors and beliefs on the part of many people that cause fundamental changes in the ability to sell property. In the past buyers and sellers could be matched up with a smoothly transitioning market, stable appraisals easily obtained, and no great surprises. Today’s market is a major surprise to many people in all groups.
Perhaps the biggest surprise yet to come might be when this market turns back up improves and becomes active again. Traditionally, “soft” markets when stabilized might see a rush of buyers to the market. Those who have been sitting on the sidelines will move quickly, trying not to be left behind for what they still think are bargain level prices. The bottom will have been reached, and values will climb. The fact is no-one knows how fast that climb in value will be when it comes. Sellers will quickly adapt to any increased demand, and professionals in the real estate business will experience a whole set of new problems.
People will tell you today that they were surprised at the speed of the decline in the market. What started out as a small “sub prime” problem grew into a vast and pervasive drag on the whole economy. But, we may still also be surprised by the speed of the resurgence of the market when it comes. People will still need places to live, jobs will still be filled by those who are able to work, economic times will improve, loans will still be needed at reasonable rates, travel to jobs will stabilize with the new realities of gasoline prices, Americans will adapt and we may well start the next cycle of upward trends in both values and economic growth.
The sooner we can stop talking and reading about this “soft market” the better it will be for anyone associated with real estate as an owner or an employee of that particular sector of the economy.
