While much of the nation is blanketed with snow, ice, and sub-zero temperatures, here in Austin, Texas, we are already seeing the first signs of spring: For Sale signs.
Yes, despite the housing bust of 2006, hope — and home sales — spring eternal. Austin was lucky: it did not suffer as badly as other regions during last year’s downturn. Demand for houses stayed fairly high, although the giddy prices of previous years were not in evidence. Still, it had become a buyer’s market almost without warning, and more than a few sellers were caught unawares. An anecdote: my neighbor put her house on the market just when interest rates started to rise. She got three offers, but none were at her asking price. She refused to budge. Her house never sold, and she ultimately took it off the market after many months.
Nationwide, the new home market was hurt the most. After years of unprecedented growth, developers were hit hard with cancellations and reduced demand. Many of the big-time developers had to resort to serious horse trading and incentives to complete deals. Hovnanian and D.R. Horton were just a few of the home builders that reported missed earnings for a couple of quarters, and the M-word (merger) started to be noised about.
Speculators were also hit hard as they snapped up houses in new developments with the intent to flip them. Supply well outpaced demand, however, and many investors were caught holding the bag when buyers balked. Other buyers who turned to riskier forms of financing — adjustable-rate mortgages, balloon notes, and 100% mortgages, for example — also found themselves in trouble as, once again, demand fell and interest rates rose. Subprime borrowers also felt the pinch, as they were borrowing at higher rates. As foreclosures rose, some lenders decided to get out of the subprime market altogether.
So what’s in store for 2007? With interest rates at around 6.75%, the days of getting a 4.25% rate are long over. Still, rates appear to have stabilized and might even drop. As the temperature warms, so does the market. All those half-finished suburban developments awaiting kids and minivans and saplings and sidewalks will probably start to fill up slowly over the spring and summer months, as people try to move before school starts. In short, it won’t be a boom but rather a modest rebound.
Finally, I like to think we all learned a lesson from last year. Builders won’t over saturate the market with new construction. Real estate investors will go back to investing wisely. People will save their creative urges for poetry, not finance.
And my neighbor, bless her heart, will sell her house.
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