MAY turn the market around
But how much of a difference will the interest rates
make in 2007? Many analysts say certain factors
will keep low rates from making as much of an
impact on the housing market as in previous
years. The consensus points to three factors:
Prices are still high. Even though consumers
can get more for their money with low interest
rates, houses cost so much that they still might
not be able to afford a house to justify the
move. "The housing market is very interest-rate
sensitive," says Dian Hymer, a real estate
broker and author of "Starting Out: The
Complete Home Buyer's Guide." But even
if rates went back down to the lows of two to
three years ago, "I'm not sure that the
housing industry would do as well as it did
because prices have gone up so much."
Poor timing. Another reason low interest
rates might be less compelling has everything
to do with timing. According to the NAR, the
average homeowner moves once every seven years.
Since so many people bought homes during the
boom a few years ago, they might simply not
be planning to move again soon. Interest rates
may be stable, but "they're not quite as
low as they were two years ago," says Celia
Chen, director of Housing Economics for Moody's
Economy.com. That means "many people who
had any intention of buying homes within the
next couple of years have already done so. Because
the conditions were so good they did that and
now there's just not that much of a need to
trade up as before."
No rush to buy. Likewise, the fact that
consumers don't expect rates to rise significantly
for some time may actually lead them to put
off home purchases this year as they wait to
see whether prices continue to fall. With stable
rates, "there's probably not that sense
of urgency among the buyers," Porter says.
A market turnaround?
But some analysts are more excited about the
interest rate environment and think its stability
will, indeed, turn things around in 2007. "Consumers
don't have to make snap decisions," says
Walter Maloney, spokesman for the NAR. "But
(the low rates) create a window of opportunity.
We're looking to see sales pick up, and once
you start to get to some threshold, you'll see
it pick up a little bit more. There's been a
lot of natural hesitancy on the part of buyers
taking a wait-and-see attitude. That is something
that we think has turned around in the last
couple of months."
Porter agrees, saying low interest
rates lead to more qualified home buyers. As
potential buyers see prices stabilize, he predicts
the low rates will give them that needed push
into the market.
Fratantoni predicts the lending community will continue
to come up with loan products that give consumers
more buying power even as home prices remain
"I think there's enough flexibility
in the system where lenders are going to keep
providing products to enable the purchase of
homes," he says.
Given the fact that the interest rate environment will remain stable, 2007 could very well be a good year for the real estate industry.
"We think in about six months the market will regain its footing and start to pick up again and you might even start to see some increase in construction spending," Fratantoni says. "Our anticipation is that's going to be somewhere from the middle to end of this year."