Buyers Gain Leverage on Existing Home Sales Drop

Home buyers today have timed it right.

Yesterday’s post addressed the fact that home loan approvals are getting easier.   (Full Article:  Home Loan Approvals Getting Easier ) Mortgage rates are at their lowest levels in history.  Home prices, while recovering, still sit well below their April 2007 highs.

Now, soft home sales data just strengthened the buyer’s negotiating power a little further.  The National Association of Realtors®’ Existing Home Sales report showed that the number of resales plunged by 1.4 million units in July.

The national data is a 27% drop from last month and now puts single-family home resales at their lowest levels since May 1999.  Nationally, the drop in sales means that the inventory has increased.   At the current pace, it would take 12.5 months for the inventory to be absorbed.

Compare that to just 8.9 months of inventory as of last month.

Of course, real estate is always local.   Real estate will vary from Wrigleyville to Andersonville, from Wicker Park to Lincoln Park.  Seller sentiment; however, isn’t as hyper-local.  It’s more CNN-based than reality-based.

Sellers were happy a few months ago.  The first half of this year saw stimulus-driven buyers all trying to identify and close properties at the same time.  Sellers had it made the day before the first time home buyer tax credit expired.   What we’re seeing now is a natural slow down.  So many buyers accelerated their purchases into spring that the tax credit had a short-term effect of increasing home values by the $8,000 tax credit.

In the broad sense, home values will influence how much you pay for your home.  In reality, when a buyer and seller are $5,000 apart, the prevailing news determines who blinks first at the negotiating table.  It looks like the sellers are under more pressure than the buyers right now.

The main reason to buy today is not home prices, but it is a nice plus.  Rates are down .75% since April.  Every .125% in mortgage rate has the same financial impact as roughly a 1.5% change in home price.  While home prices have risen modestly, rates are lower to the tune of six of those .125%’s—in terms of home affordability, that’s the equivalent of roughly a 9% change in home prices.