As December 2008 residential real estate resales results were reported, a surprise was in store as sales were up. Reports indicate that buyers are taking advantage of lower prices and 45% of the sales were of foreclosures and short sales. A short sale occurs when the seller agrees to take less for the property than what they owe to the bank. In a short sale the bank must approve the sale as a third party to the contract and the length of time to close a short sale is longer, taking up to 3 months to settle sometimes. Foreclosure sales settle more quickly than a short sale, because the seller is the bank in most cases.
Sales of new homes were off and this is actually good news. With an oversupply of resale homes on the market and with buyers soaking up some of the excess inventory with the recent buying spree; having less new homes being added to the overall inventory actually helps in the short run to decrease inventory. This trend can lead to a more normal real estate sales market. When the market reaches a point where inventory levels begin to fall, new home starts will increase as buyers look for more choices. Right now, buyers have too many choices and that’s why adding more inventory in the form of new homes is currently not advantageous.
With January and February traditionally being slower sales months due to weather conditions, the spring market will be the next hurdle in the real estate market recovery watch. Promises being made by the federal government to help stimulate real estate sales may do more for the economy more than any other stimulus measure taken. Time will tell.