Why isn't the home selling? It's the Price.

Now nearly two months into "historically low rates" and home sales really haven't perked up as much as one would think they should. Theories abound as to the the reason(s) why, so it's time to comment on some of those out there.

1) We "borrowed" buyers from the future with the tax credit:

Yes we probably did. There were a number of buyers I had an opportunity to work with that specifically mentioned the tax credit as their motivation to buy at that time. As proof look at the massive run up in offers in the last two weeks prior to the expiration date. The effectiveness of the tax credit is certainly debatable. Some analysts argued that the credit didn't really add that many extra buyers to the market as the expectation was that there were going to be 2 million first timers out there anyway, regardless of the credit.

While not being able to confirm it, Christine Kites of Keller Williams Mid Willamette's Broker Duo believes that the slow down after the credit's expiration is due to the fact that the "immediacy and urgency" to buy was removed from the equation. That sounds very reasonable to me as we have more of a buyer's market mentality now with lowball offers or buyers simply sitting on the sidelines waiting for the sellers to bleed a little more. If she is right then maybe the fall and winter selling season will make up for a relatively anemic summer one.

2) Anxiety about future economic prospects:

We all have our own personal markers for when we decide to make a large purchase. Potential buyers are understandably concerned about their ability to make a house payment in light of the current economic conditions. The prospect of committing to the biggest obligation they will ever make when they are watching their friends and neighbors lose their jobs seems counter intuitive to being a prudent consumer.

If one is concerned with losing a job in the future having a mortgage on a home is a far better position to be in than being a renter. Moral arguments and other considerations aside,  if I were one that had a job that allowed me to qualify for a loan now and I was worried about my future employment I'd buy a house, now. The reason is simple; If you are a renter and you don't make your house payment you are going to be kicked out in 30 days. The last stat I saw showed that the average number of days from first missed payment to the date the sheriff shows up at the door is 444 days.  A year and 3 months sounds like a much better timeline to get my act together than 30 days.

3) Price:

Anybody in lending that understands it will always point out that the cost of the money being borrowed has a bigger impact on the "affordability" than price. So, here we are. The refinancers have figured it out. Drop the interest rate save money, period. a 1% change in the rate of 30 year loan drops the P/I nearly 10%. Potential buyers know it. Time for the sellers to get on board too.

I liken the amount of profit one could make on the sale of a home as "game show" money. If I come in to the Price is Right I start at 0. If I run up my winnings and then lose it all because I spin the wheel too many times I end up with what I started, 0. Despite NAR's contention a primary residence is NOT an investment, it's a place to call home that allows you to control your personal living environment. It gives the homeowner an opportunity to live in a place that is safe and secure, surrounded by others in the same economic cohort. Plus Uncle Sam gives us some tax spiffs to boot. That is not the definition of an investment.

To be sure, there are some sellers out there that can't sell without bringing money to the table because they bought at the top of the market. However, many others have the opportunity to sell their homes at a "profit" should they choose to. The only real challenge Realtors are being presented with right now is getting those sellers that can sell to lower their prices. Sellers need to embrace the horror and stop waiting for the market to bounce back, it's going to be a long while and once rates start going back up buyers will be pounding on them even harder than now.  The question sellers should be asking themselves is, do they want to be "on" the market, or "in" it.