Across many parts of the country, there is a severe shortage of inventory. Stated differently, if you are a buyer coming into one of those markets, you will find that you will have to move fast, and often are faced with multiple offer transactions. And that is absolutely the case in the Matsu and Anchorage Alaska real estate markets.
But why??
We've all been conditioned over the last 5-7 years to hear about how bad the housing market is, and we a nation have literally seen trillions of dollars of equity evaporate as home prices fell like a brick in most places across the country. With "For Sale" signs on every other home then (it seemed) they are now suddenly gone...
But why??
Here is what I think is going on...
The market has begun to recover nationally and as such, a couple of things are coming into play that are facilitating the changes that we are currently seeing. I think that first and foremost, the largest wave of foreclosed properties AKA Real Estate Owned (REO) has cleared the market. And although there are still more to come, the volume of them appears to be fewer than the glut that we just went through. The reason for that is quite simple and has to do with the timing of when most of those properties were sold and more importantly, how they were financed.
As most real estate markets across the country boomed in the late 90's and early 00's there was almost a hysterical level of buying frenzy...values were skyrocketing as a result of liberal lending programs that put many buyers into homes before they could have been just a few years prior. "No-Doc", "Stated Income" et al were commonplace and when teamed with 3-1 and 5-1 Adjustable Rate Loans, Interest Only Loans etc. etc. etc. it was like throwing gas on a brush fire. Millions of homes were sold during that period...more than any other time in our nation's history.
And then the adjustable mortgages started to adjust...
And home owners were faced with dramatically increased payments. For example if a home buyer purchased a $250,000 home using a 3-1 ARM over a 30 year period with a fixed rate at 3.5% for the first 3 years with it set to adjust to market rate at the end of the 3 year period, saw their principal and interest portion of their loan go from $1,123/month to $1,580/month with a 6.5% rate. An increase in their monthly payment of nearly 30%!!
So millions of decisions were made to put homes on the market across the country in order to get out from the increase in mortgage payments.
But it was too late....
As millions of other homeowners realized their dilemmas, the markets became flooded with homes that were purchased during the boom simultaneous with one another. Ironically...these were the same homes that had buyers literally fighting over them just a few years earlier, to now fighting over whom could lower their prices lowest in order to try to attract a buyer.
And the bubble burst...
The banks started to foreclose on the properties and because they didn't even realize the depth of the problem, they too flooded the markets with their own REO inventory and in a sense were competing against themselves in a race to hit bottom.
And this is where we are today.
This morning Home Services CEO and former President of my former company, Edina Realty, was on Fox Business sharing some insight as to where the markets are currently at and what he predicts in the coming months. Here is a link to that interview. Interview with Home Services CEO Ron Peltier
It also is worth mentioning that at our weekly sales meeting the head of Alyeska Title indicated that they are doing a tremendous amount of refinance closings currently. Someone else added that homeowners are trying to take advantage of the low interest rates that we currently have.
But I don't think that is the case.
My position is that this re-fi boom that they are currently experiencing has less to do with the low interest rates, but more so because prices are starting to recover enough so that homeowners have enough equity in their properties that they can now refinance that debt at the lower rates. We have been at these rates for long enough to have been through the lion's share of homeowners that could actually refinance.
And as thousands of homeowners get out of negative equity positions (mortgage is higher than home is worth) we will see more refinance making it so their home is more affordable allowing them to stay in it, putting further downward pressure on inventories, making home values increase that much faster.
There is a lot of information contained in this, and if you have questions on how all of this can be used whether you are buying, selling or both, feel free to call and we can analyze your own personal situation and come up with a plan that is right for you.
