For instance, in the Northern Virginia suburbs of Washington, DC, homes in the price ranges below $500,000, are seeing short sales, foreclosures and even organic (regular) sale homes getting snapped up. As a result, “days on the market” for homes was declining. Demonstrating how localized markets can be, Washington, DC proper and the close-in Maryland suburbs are not seeing the same bump in sales. Yet. In the San Francisco Bay Area the median sales prices for homes and the number of homes sold both rose in May.

It was the second month in a row that the median increased (largely due to a reinvigorated market for more costly homes), and the ninth time overall that sales went up. Homebuilders, who need to be cautious about assessing the market, inclined more to the optimistic side in July, starting a greater number of new homes and recording the most positive sentiment numbers since September 2008. “Builders are seeing slightly better sales conditions this month as consumers take advantage of the first-time buyer tax credit, low interest rates and attractive home prices,” said the National Association of Home Builders.

Whether the positive news on the stabilization front will continue will depend to a large extent on whether the market stays clear of high levels of foreclosures. That, and the impact of rising unemployment, rather than rising payments on adjustable rate mortgages, are the biggest worries right now. Realtytrac reported that foreclosures in the first half of 2009 were 9 percent higher than in the last half of 2008, but despite that, the market doesn’t seem to be flooded with them. Federal Reserve Chairman Ben Bernanke said he see foreclosures peaking before the end of the year. Some have theorized that banks are sitting on a large number of foreclosed homes that some have called a “shadow” inventory. If they release these in a controlled fashion to lessen their impact, then price stability shouldn’t be compromised. If they spit them out in big numbers all at once, though, that could be trouble.

In general, there are some trends at work that should be positives for real estate investors. First, even with housing affordability flirting with alltime highs, many potential homeowners won’t or can’t own. That means more Americans will be renters. Mortgage programs that seduced marginal buyers into homeownership are largely gone. Even some solid financial citizens are having trouble getting mortgages or raising a sufficient downpayment. Those who have shorter time horizons for staying in a house will (or should) elect to rent, instead. So filling rental properties with qualified occupants should be easier than in recent years. Should be.

Except that apartment vacancies are the highest since 1987. One reason: household formation rates are way down. This is putting pressure on rent prices, as well as contributing to the low rate of home sales. So where are people going? Moving back in with the parents, sharing a home with friends or other relatives. Also, with jobs scarce, immigration has slowed and some immigrant workers have even returned home. Many echo boomers, the children of baby boomers, who are an even bigger age group than their parents, have been putting off going on their own and represent a pent-up source for new households when conditions improve. The slow household formation rate will probably not reverse until employment starts to rise. But when it does, occupancy levels should climb as well and rents will follow. Home sales and prices will also accelerate with rising household formation. In the short run, though, investors should be prepared to have to compete for renters. The group that has been in the best position to take full advantage of the current market conditions and set themselves up for long term home price appreciation are first-time homebuyers.

Without the burden of a home to sell, a patient first-time buyer can seek out a bargain and, with FHA financing, get into a home with a downpayment of a home with 3.5%. And with the first-time homebuyer federal tax credit of $8,000 that buyer no longer has to be paid back (only good for sales closed before November 30), the timing for first-time buyers is perfect. Even those first-time buyers who had been fearful of seizing the opportunity are finally succumbing to the irresistible temptation to join the ranks of homeowners.  © 2009, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc.

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