The start of spring means changing weather and blooming flowers, but for those in the real estate business it typically means a period of increased sales. While some parts of the country are seeing a moderate increase in sales, there are many regions that have remained stagnant or even showed signs of decline. Some of this has to do with the lousy weather, but that can’t be blamed for all of the poor sales to date. There is a much deeper underlying problem that is affecting sales regardless of what part of the country you are in. Employment confidence is still low and unless that changes, sales will remain stagnant this spring.
Real estate has always consisted of markets that were heavily influenced on location. What is going on nationally may not have much of an impact in the market in Vermont. This trend has become even more pronounced since the market collapsed some five years ago. Certain areas have recovered much quicker than others, while there are still markets that are depressed and show little to no signs of recovery. Looking at national data can give you some clue as to what is going on and what may happen next but it won’t tell you what is happening in your specific market.
The current problem with the real estate market is that there is too much inventory for the amount of buyers. In the past, this was blamed on the lack of mortgage programs and the difficulty to obtain lender financing. Over the past year or so, lenders have pulled back on many of the underwriting policies that were getting in the way and have started to lower some guidelines in some programs. Hypothetically, this should have opened the floodgates for buyers to come out of the woodwork and take advantage of low interest rates and low home prices. It did not, however, and buyers are still reluctant to purchase. It is now being seen in many markets all over the country.
The main reasons buyers are not committing to buy is an inability to come up with a down payment and confidence in employment. Much was made about the unemployment numbers and the issues in the workforce when the market tanked. While things have certainly gotten better, they are still far from perfect. If buyers aren’t confident in where they are working and what their income will be like in the future, they will not commit to a payment for the next 30 years, regardless of what that payment will be. The other issue is that while programs have changed they still require a minimum of 3.5% down payment with most programs requiring much more. The FHA programs looking for lower down payments have increased their mortgage insurance payments and are not nearly as attractive as they once were. Many buyers do not have the means to put down 10% or more and are opting to rent until they save more money and they are more confident in their employment.
There will always be buyers in any market and in any situation because people need a place to live. While the spring season has started off slowly in market regions, it should not be judged on the first month alone. The summer months can rebound quite quickly and change the perception of the market, but it is something that should be worth watching.