Housing consumers appear to be coming down with a case of cognitive dissonance caused by uncertainty over a glut of gloomy housing market reports that follow one of the greatest booms in history.
It's a crucial time for housing consumers to make the right decision and as a reminder to consumers who are often befuddled when the market shifts, the National Association of Realtors is offering some help -- in an unprecedented manner.
Three weeks ago, an AOL-Associated Press Real Estate poll reported nearly half, 49 percent, of Americans were still under the impression that housing prices in their regions will rise in the next two years.
The survey also revealed, while 46 percent of Americans did believe homes in their area were over priced, a greater number, 50 percent, did not believe homes were over priced.
The poll was conducted in September, well before the widely reported early October forecast from Moody's Economy.com, "Housing at the Tipping Point -- The Outlook for the U.S. Residential Real Estate Market" which said median home prices in 20 metropolitan areas would "crash" by 10 percent or more in 2007.
It also forecast "measurable" price declines in 70 markets not already experiencing declines, in addition to the 30 markets it said were already experiencing price declines. With the 100 markets representing half the housing stock in the nation, the stage is set for 2007 to become the year of the first national price decline since the Great Depression, the report said, with price declines expected to continue into 2009.
Weeks later, appearing to back up Economy.com's forecast, the U.S. Commerce Department reported the price of new homes, nationwide, fell nearly 10 percent in the past year, ending in September, representing the greatest new home price plunge in 35 years.
Economy.com attributes much of the housing market's "unwinding" to, among other factors, tightening monetary policies.
"While long-term interest rates and thus fixed mortgage rates have risen only modestly, short-term rates and thus adjustable (rate) mortgage (ARM) rates have risen substantially more," Economy.com reported.
However, the same AOL/AP poll also reported nearly an equal number of consumers said they are feeling the ARM pinch as those who said they did not fear the ARM pinch.
Thirty-six percent of home owners with ARMS say they are concerned adjusting rates could break the budget, but 35 percent of future home buyers were still out to finance a home purchase with an ARM.
"Adjustable rate mortgages are a gamble for homebuyers. And with housing prices often out of reach, it can seem like a saving grace,” said Samara Jaffe, head of AOL Real Estate.
'The risk of an ARM can pay off, but it's vital that future homebuyers are well-informed about all their mortgage options and shop around before making this type of major financial commitment," she added.
Additional reports indicate the housing market is due for more pricing correction, which typically also means slumping sales, but by the end of October, the National Association of Realtors was already calling the sales game.
In the trade group's monthly sales and price report for September "September Existing-Home Sales Ease, Setting State for Stable Market", David Lereah, NAR's chief economist, said stabilizing sales should build confidence in the housing market.
"Considering that existing-home sales are based on closed transactions, this is a lagging indicator and the worst is behind us as far as a market correction -- this is likely the trough for sales," he said.
Firmer, even growing prices shouldn't be far behind, NAR says.
"When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market, and sales will be at more normal levels in the wake of the unsustainable boom that we saw last year," Lereah added.
NAR is backing up its assessment with a sort of public service announcement.
On Friday, the bullish NAR, in an unprecedented "newspaper blitz" with full-page advertisements in major daily newspapers, urges home buyers on the fence to take the plunge now because "perfect conditions for buyers" are likely to wane with improved sales and prices.
Proclaiming, "It's a great time to buy or sell a home" the ad cites near record low interest rates, fat inventories and stable prices as pluses for those who may have been put off by recent news reports.
Consumers need to make home buying decisions based on their own personal goals, needs and lifestyles, but the ad also contains a key to help ease some of the uncertainty.
The days of instant real estate wealth may be over for now, but, chances are, there's more to come. Just be prepared to stick with it, if you make a stab at home buying now.
As the ad says "Homeownership is a safe, secure way to build long-term wealth (with an emphasis on "long"). The national median price of homes bought ten years ago has increased 88 percent. The number of US households is expected to increase 15 percent during the next decade, creating a continued high demand for housing."
Just as the slack demand now is pushing prices down, and consumers must factor that into their decisions, historically speaking, the demand will return, and consumers must consider that as well.
