Waiting out the Market.
Bottom of the market? Economic recovery? That’s not how a growing number of potential home buyers are assessing the current real estate market right now. Despite many indicators that have pointed toward a gradual recovery in 2010, there’s a contrary view that’s starting to gain some footing, and it’s making these buyers and real estate investors nervous: Double-Dip Recession.
What is a Double-Dip Recession?
Investopedia defines a double-dip recession as follows:
“When gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.”
While nobody is standing up and saying that we’re heading back into a recession, the news this past week certainly raised questions about the validity of our current “recovery”, as this article from CNBC discusses: Double-Dip Recession Fears Creep Back into the Market. For some home buyers, this specter is enough to keep them on the sidelines, even despite record-low interest rates. Here’s why…
More Inventory, Lower Prices…
There’s no question that the market in San Carlos right now favors the seller. There are simply way more buyers than available listings, and this imbalance has helped keep San Carlos home prices stable. But this imbalance has also been enough to make some buyers put their home purchase on the back burner for the time being. It only takes a couple of multiple-offer losses to take the starch out of anyone’s desire to buy a home.
Those who subscribe to the likelihood of a double-dip recession believe that this event will not only nullify this imbalance, but sway the pendulum back in favor of the buyer. Consequently, they’re willing to wait for the following events to transpire:
- Price Drop. Some buyers are reluctant to buy now because they’re afraid their home value may drop in the event of another downturn. It’s a legitimate concern, but also a short-term mindset. The value of everything drops during a recession — housing is no different — so they’re willing wait for a better deal on any house later, than to buy their first choice now.
- Inventory Increase. Whether it’s a cause or effect, unemployment and recession are usually joined at the hip. Another extended period of unemployment will simply break the back of many homeowners who are currently struggling to stay afloat. This will increase the number of listings (distressed or otherwise) as people simply give up the fight and move on. Higher inventory means lower prices, and potentially better choices for buyers.
What to Do?
If you’re scratching your head wondering whether it makes sense to jump in now and buy a home, or wait until the direction of the economy becomes more clear, you’re definitely not alone. Banking on another recession happening is a calculated risk — regardless of what happens, there’s a unanimous opinion that interest rates will rise this year, so even if you do hold out for a better deal, it may cost you more to finance it.
In the end, your own personal needs will dictate which direction is right for you. Some people simply need to buy right now, and have a long-term horizon absorb the ebbs and flows of housing prices. Others have the luxury of time, and are willing to wait out the market. But this increasing stand-off will have an interesting impact on the spring market, especially if the specter of another recession lingers.
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