Are buyers ready to buy?
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How many buyer-occupants do you now represent who are pre-qualified in writing by a lender based on a verified source of funds?
- 0-1; (41%, 35 Votes)
- 2-3; (36%, 31 Votes)
- 6 or more (13%, 11 Votes)
- 4-5; or (10%, 8 Votes)
Total Voters: 85
The housing market, as with all open markets, is driven by demand – so why is everyone stuck on supply? Part I of this article series discusses the factors preventing buyer-occupants from entering California’s housing market and provides a diagnosis for the housing recovery: buyer-occupant demand.
For an analysis of why the housing inventory appears to be shrinking, see Part II of this series.
Where does buyer demand come from?
Have you heard the news? Rumor has it buyer-occupants are standing in line ready to buy, and it is only California’s low housing inventory that is thwarting their demand for housing (and halting the housing recovery).
A quick lesson in fundamentals: end-user demand, organically originating from those intending to occupy the property as shelter or rent it out for a long-term investment, controls the consumption of housing. If consumers do not want it, the inventory size does not matter.
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About The Author
Carrie B. Reyes
is lead writer in charge of the Real Estate Practice and Due Diligence and Disclosures books.
The truth is that the housing market cannot recover without job recovery. Jobs come first! Lenders are unwilling to lend to unqualified buyers any longer, and that is understandable. Also, as long as an executive order by the administration can make foreclosures more difficult, lenders will not take any risks with marginal borrowers. Why would they possibly want to wait years to foreclose, while the delinquent owner sits there without paying a dime? No, they will lend only to stellar customers.
So if you want more of this stalemate, please vote accordingly in November, you’ll get four more years of this!
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As always there are trades offs. The Federal Reserved increased the spread between long and short term borrowing rates to encourage financial markets to lend, and help unfreeze capitol markets. Lenders may also be less inclined to retain paper in a low interest rate environment with the possibility of rising inflation. These spreads provide an incentive and paid for the risk to lenders in sluggish economy within a engineered low interest rate environment.
Still, the Federal Reserve also knew with each interest rate reduction more of the population could qualify to borrow possibly stimulating consumption further.
As always the pendulum swings, and then it becomes a matter of pursuing economic theory to a possible extreme. The current Federal Reserve policy had already impeded money market fund yields with the expected results Some analyst felt that the Federal Reserve should pursue equilibrium by returning to the short end of the bond prior to the expiration of Operation Twist to maintain the above spread while continuing to engineer a low interest environment in a sluggish economy. Not maintaining this spread may be kicking down the first domino in a sequence of events that could yield a economic contraction in 2013. Observation, prudence, conjecture?
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