Mark it, dude. 2007 will go down as one of the most interesting years in the history of residential real estate.
It was a year of frustration for many, as too many sellers were competing for too few buyers, consumers watched financing options disappear, at-risk borrowers were being smothered by resetting mortgage rates, and brokers saw the tail-end (we can hope) of a two-year swoon that saw their sales fall 32 percent. It was the year we realized that there are no quick fixes or band-aid solutions to fractured market fundamentals. That there’s no such thing as a party (1997–2005) without a post-party clean-up (2006–present).
Many in the housing industry (MAAR included) expected 2007 to be the year that home sales halted their decline, but still-fragile affordability and dampened consumer confidence would postpone any rebound. And as the summer unfolded and the credit crisis took hold of international finance markets, a new wrench of uncertainty was thrown into the works and buyer activity stalled even further. For the year, the Twin Cities 13-county metropolitan area saw 43,560 purchase agreements signed (pending sales) and 40,055 closed sales—down 15.5 and 16.4 percent from 2006, respectively.
Naturally, a continuation of buyer advantage brought corrective price declines. There’s no way to sugarcoat it: the annual median sales price in the Twin Cities fell relative to the previous year for the first time since we started keeping records in the 1960s. While this understandably causes anxiety for some—especially sellers—it also means fantastic opportunities for home buyers, whom are desperately needed for future growth.
Seller activity also fell, but to a lesser degree than the buyer side. New listings finished the year at 105,044, a decrease of 2.8 percent from 2006, but the number of homes for sale stayed at record levels throughout the year due to slowed sales.
Prices weren’t the only things retreating from their boom-year positions, as investors grew more conservative in lender qualification standards and retreated from risky loan products they had made available in recent years. This “back to basics” approach shrunk the qualified buyer pool, which will have a hangover effect for a couple of years but will also benefit the market by staving off vulnerable consumers from unmanageable risk.
Despite a tumultuous environment, changes took root throughout 2007 that have set the stage for a slow and gradual rebound. Houses got more affordable, loose lending practices were reigned in, and builders drastically cut back to stem the growing inventory tide. To put it simply, there’s a silver lining to that big grey cloud that needs to be recognized.
The market’s shift to the buyer’s favor has been a natural reaction to the boom years, and was expected. While it causes some pain and anxiety now, it will ultimately lead to great opportunities and motivated home buyers, which will launch our eventual rebound to a more robust market. Housing affordability has improved dramatically in recent months.
Often, when people talk about our current environment they refer to it as a “down market.” While “down” may be descriptive of what many experience personally, it might be better stated as a “correcting market,” as that implies better days are ahead as a whole.
The strategy for 2008 should be survival, as it will be another year of slow home sales before we see signs of improvement in 2009. In the meantime, we’re projecting 41,000 purchase agreements will be written next year and roughly 478,000 new cable television shows dedicated to real estate will be produced. To put it simply, the public’s voracious interest in real estate isn’t going away anytime soon.
So what do you think? What does 2008 hold for housing? Comment to this post and let us know -- join the conversation.
