This past week saw reports that for the first time in four months mortgage interest rates are headed up – slightly. Some say this is due to signs that housing sales are percolating upwards. Regardless, a rate increase is not a bad thing. It will likely cause some of those sitting on the fence to get into the market.
What should be of more concern is shrinking inventories. In several markets we have anecdotal evidence from leading brokerage firms that low inventories are starting to impact sales. In one market, Denver, it is reported that as of last week nearly 50 percent of all the listed homes on the MLS are under contract. From every market we hear that most of the action is still in the entry level segment of the market.
It sets up an interesting challenge. With home valuations still heading down what will happen when there are two to three buyers for each of these homes yet they cannot enter into real price competition due to the inability to get the home appraised. This situation would seem to overly favor the all cash buyer, often an investor, who doesn’t worry much about valuations.
Reports also indicated that rental vacancy rates are at a ten year low of 5.2 percent. As the homeownership rate declines more and more families are heading the rental route and right into strongly increasing rental rates. Federal agencies and some private financial institutions are poised to drop more inventory of distressed property into the market and execute programs to turn some of these into rentals. It would be a good time for them to do so.
By Steve Murray
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