Rates Relax–On With the Rescue and Recovery Plan
The inflation scare that blew up last week has calmed down–if only temporarily–and, as that threat recedes, home mortgage interest rates are easing again.
Will applications for refinancing and purchasing new and used homes reverse a four-week downward trend? We only have to wait less than a week to learn how sensitive the number of applications is to a dramatic change in direction of mortgage interest rates.
In any event, at an average 30-year fixed rate of 5.38%, rumors of the rising interest rate-driven demise of housing’s newfound flutter of a pulse are premature. Good news headlines of a housing bottom–in sales unit volume, anyway–can resume. The wrenching job of digging out from a three-year hole can go on.
It is only guess work, but we think that in the first half of 2010, we’ll look back to a couple of months early in 2009 and see where housing’s most anemic days of this cycle describe the literal lowpoint in the cycle for the movement of new homes.
Builders of new homes finally have just a smattering of something they really need: Good ink. Now, positive press can do only so much. Word of an uptick in some long leading indicators, or the possibility that GDP will nudge back into the black somewhere around the turn of the year, or that global demand is rising from the ashes can all soothe the psyche somewhat.
So, massively lower prices, historically low interest rates, a love-pat from the U.S. government in the form of a tax credit, and a brightening economic horizon that will eventually produce greater demand for goods and services that should increase the value of hours worked… these things are the pluses.
But one would be hard-pressed to guess that these positives can nobly offset three crushing negatives–the effects of continued high job losses, foreclosure-driven home price declines, and really daunting home mortgage lending conditions.
Perhaps the most intimidating negative force of all? It’s that credit-worthy and income secure people don’t–and won’t–think it would be really stupid not to buy a home right now.
There are two things a home isn’t any more. One is this, it’s not an investment in the money-making sense of the word. For the better part of five years, the economy designed itself around the notion that demand for houses could be strong enough to put the equivalent of an extra wage earner into every homeowner’s household. And that’s the way households bought things, as if they were earning half again as much as they were earning.
The other thing a home isn’t is practically blasphemous to point out, but it’s true among more than 75% of households: it’s not a married-with-children sanctum. Home–especially a new one–is more and less than a cul-de-sac lot in a good school district.
People who are obstinate enough to deal with today’s credit conditions and lenders, and job market volatility, and financial gyrations, and actually get into the new-home market are there for different reasons today than they might have been 36 months ago, or five years ago.
The toughest code anyone in the residential real estate game has to crack is not the credit crunch. It’s the de-levering of the household balance sheet and what that means to you, me, Joe the Plumber, and his Ph D. sister. Nothing in the demographic pipeline right now says buying a home is going to make people rich, so if you’re in the game, it’s got to be another appeal.
Still, the motivation that you’re going to find is one of the more effective ones getting people back off the sidelines–and we know you’re going to do that–is that classic twist on the fear-vs.-greed principle.
In this case, fear is not the enemy, but rather a profound, unconscious force that can work entirely in your favor. It is the fear of “have not” that will stir prospective home buyers toward being a “have.” And it is the fear of being a dummy for not acting at the moment one should have that will turn 1.6 absorptions per month per community into four or five within the next 12 months.
With all due respect to both John Zogby and J. Walker Smith, I think they’re out of their league when they wax on about what homes of tomorrow should be. Smaller and walkable is the opposite of larger and more drivable. Time will tell what home buyers prefer when it comes to dimension and proximity.
What they want now is one thing: To be Smart. Smart is the new Easy Money. Smart precludes disasterous financial decisions and bears an uncanny correlation to fiscal soundness.
There’s no time like now to pull out the stops and work like the dickens to understand how dramatically prospective home buyers’ needs have changed recently.
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