My ‘instincts’ are telling me there is still alot of demand out there, but that most of it is on the sidelines waiting to see how far prices go down. People go to open houses, look around, hear about price drops and leave with the intention of waiting it out.
It is also clear to me that current inventory levels far outnumber those that can afford to buy, even if they all choose to buy today. IMO price drops will cause a monthly rise in sales of homes on the way down, except for the beginning, so the drop will level off over time and be more pronounced in the early months. We may not be in the ‘economic’ beginning of the downturn now, which may have happened last summer, but we are surely in the ‘psychological’ beginning.
Psychologically, most people are just realizing this is happening and most will not be in any mood to ‘grab deals’ anytime soon. But once we see drops of say 15% or more, IMO some fence sitters will decide to buy, say next Spring or sooner. Psychology again. People will buy into the idea of a Spring bounce. But prices will continue to fall an addl 10-20% due to a worsening economy, ARM resets and rises in new listings that outpace sales.
IMO I am being conservative and here’s why:
-What if a very bad recession starts before next summer? Not only are we on the road to one already, but the possibility of war with Iran, Korea, an all out civil war in Iraq, Israeli/Arab war and continued terrorist strikes make it even more likely.
-What if none of the buyers on the fence decide to buy? So far, the news, the economy etc. have been relatively good and most still are still not buying. What happens when ARM resets, geopolitical and economic news rain down like the perfect storm? Would a 25% drop in prices be enough for you to put aside news of massive job losses, a recession or impending conflict?
