Real Estate Market for Sellers in 2007



If ever there was a seller's market in real estate, it was the period from 2000 to the first few months of 2006. The combination of a lot of factors led to high demand, which meant sellers could literally pick a price out of the air and get an offer within a few weeks. If you sold during this period, you undoubtedly reaped a very nice profit.

Alas, 2007 is not shaping up to be a very good year to sell a home. Most of the factors that fueled the fire of the recent sellers market have now been spent. Money was one of the biggest factors, particularly given the historically low cost of borrowing it. As the Fed keeps inching up rates, the cost is no longer cheap and a large number of people at the bottom of the market have been eliminated as potential buyers. This cuts down on the demand for new homes, which means there is less competition among buyers for particular properties.

Another factor that has turned is the inventory on the market. Inventory simply refers to the number of homes being listed for sale. During the sellers market, the demand far outweighed the inventory, which led to brisk sales. This is no longer the case. Not only is the higher cost of borrowing money reducing the pool of buyers, but more and more homes are coming up for sale. Many of these homes are distressed owner situations. As home prices continue to fall, many homeowners that bought in the last two to three years are suddenly finding themselves upside down on their property. Simply put, they owe more than the home is worth. This situation is leading to an increase in defaults and efforts to short sale properties, both of which add inventory to the market and depress prices.

Finally, this is the year we find out if all those interest only and hybrid loans come back to haunt recent buyers. The best guess is they will. Many recent buyers used a dubious strategy to get into their homes. The took out financing that offered great terms for the first couple of years, but then converted to very bad terms. Most new owners assumed their homes would continue to appreciate and they could just refinance before things got bad. With home prices dropping and the cost of borrowing money rising, this strategy is not working out. Some estimates hold that up to 20 percent of people using these loan strategies will default. That is a recipe for driving prices into the ground.

So, 2007 does not look like a very good year for sellers. The good news, however, is this current buyers market will not last forever. In a couple of years, things will straighten out and return to normal. Until then, make your mortgage payments and enjoy your home.