It's Going to Be a Tough Spring for Home Sellers
With unsold inventories of more than half a million new homes industrywide-about 200,000 more than when the housing boom began in earnest four years ago-and the cost of owning one 40 percent or more than it was then, analysts believe it could take as long as two years for some local markets to reach equilibrium.
Summer of discontent? That said, aggressive discounting that builders and homeowners like Davis and Griffin have recently succumbed to is a sign that the downturn may at least be nearing what S&P's Wyss calls the "acceptance stage," when sellers finally give in and reduce prices enough to start attracting buyers. The markdowns could help increase sales during the crucial spring selling season. But analysts like Wyss expect prices to continue their decline through the end of the summer, when sellers yet to unload their properties will be at wit's end. "That's when buyers will get the best deals," he says. "In springtime, [sellers'] hope springs eternal. But at the end of the season, they'll realize they'll have to let this thing sit over the winter again."
Those who do may find the situation even worse down the road, as lenders now enduring a surge in mortgage delinquencies among subprime and other less-creditworthy borrowers try to unload a growing number of foreclosed homes. "There's a lot on the market and more on the way," Credit Suisse housing analyst Ivy Zelman says of surging numbers of bank-owned homes. According to her analysis, the pent-up supply of such distressed properties could add more than a half-million "must sell" homes to the market in the coming two to six months.
"The peak pinch year will be 2008," Christopher Cagan, research director at First American CoreLogic, says of a coming surge in borrowers facing resets in their adjustable rate mortgages. He projects 1.1 million reset-related defaults over the next five years, and an additional 70,000 for every 1 percent fall in home prices, especially in places like San Diego where ARMs represented 40 percent of all new loans issued last year. "The more prices fall, the less equity [homeowners] have and the more trouble they'll have refinancing," he says.
That leaves would-be sellers with few choices. "If you absolutely have to sell, then lower your price now and get ready to negotiate," says June Fletcher, author of the book House Poor: How to Buy and Sell Your Home Come Bubble or Bust. "But if you don't have to sell now, I would just hold off for a while, because things are probably going to get worse before they get better."
Of course, the converse is true for those looking to buy. With mortgage rates still well below their peak last July and falling in recent weeks, "buyers are in the catbird seat," says Mark Zandi, chief economist at Moody's Economy.com, who expects rates to hold steady through year's end at around 6 percent for a conventional fixed-rate mortgage. "They can afford to take their time and be a tough negotiator."
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