No one is contesting that the St. Paul real estate market has changed. We're in the midst of this market correction. There's no denying the reality. Many buyers have dropped out of the market in fear of buying a home that will lose value. Many sellers are listing their homes in an attempt to sell BEFORE the prices get lower.
Chris Galler makes the following statement in a newsletter to St. Paul REALTOR® members:
Our national market correction was inevitable and predicted. Homes have been appreciating at rates that were not sustainable over the long haul. Low mortgage rates and incredibly generous qualifying ratios have turned many renters into homeowners earlier than they would normally purchased. Just like all good things, this one is coming (we still have a little ways to go) to an end.
There are key statements in Chris' quote.
- The increase in home prices couldn't continue. Houses had reached prices that normal wage earners could no longer afford. Since the prices had exceeded affordability, buyers stopped buying.
- Many renters became homeowners earlier than they normally would have because of the low interest rates and easy qualifying.
- The ceiling has been reached.
My thought immediately went to the renters who became homeowners earlier than normal. Were they prepared? Did they realize how much their ARM mortgages would cost "next year"? Did they think about the additional cost of homeownership, i.e., utilities, maintenance, and tools for upkeep?
Homeownership is a huge responsibility. Some of these new owners are now becoming foreclosure statistics because they were not really ready for homeownership. Whereas the real estate market allowed them early entrance, that early entrance may also have worked against them as they weren't totally prepared for overall expenses. Some lost their homes. Many will never re-enter the housing market. Some will find it harder to re-enter than it would have been had they waited a couple more years before buying.
The cap certainly has been reached in prices. Now, we hopefully will go more cautiously but not stop buying entirely as the interest rates are still very good. Compared to the 17% figures just a couple decades ago, 6 to 7% is a breeze!
Great balls of fire. Thanks for posting this.
Posted by: homes | August 22, 2007 at 12:12 AM