As the weather cools and New Jersey families settle back into school routines after three months of summer vacation, selling a home is usually not on top of the priorities list. Besides, conventional wisdom holds that the Spring market is the time when buyers are most active. However, if you are at all considering upgrading or downsizing in the coming twelve months, I strongly urge you to consider this unique window of opportunity to dip your toe into the real estate market.
Three factors in play at present conspire to make it wise to throw out conventional wisdom.
The first is the $8,000 federal tax credit for qualified first-time home buyers, which is set to expire on November 30th. As discussed in my previous column, this is the first time such incentives do not have to be paid back to Uncle Sam. The number of people taking advantage of this program has had a major stimulative effect on the residential real estate market in New Jersey, and has enabled a virtuous cycle of upgrades, impacting even those homes that are not targeted to prototypical "first-time" home buyers. More importantly, this program has accelerated the buying decisions of millions of Americans. Those who would have bought their first homes in 2010, or even later, have found it compelling to jump into the fray this year.
The second is the massive amounts of liquidity that governments around the world have pumped in the financial markets, which have kept interest rates at historical lows, about 5% for a conventional 30-year mortgage. With the talk these days of "green shoots" and the recent run-up in the stock markets indicating, if not a recovery, at least a stabilization in our economic system, rates may well go higher in 2010. Note that for every 1 percentage point increase in the interest rate, a buyer with a $400,000 30-year mortgage will have to shell out an extra $250 each month, so higher interest rates can hurt.
The final factor is evident in the recent run-up of the stock markets, which demonstrates that the population at-large is emerging from the shell-shock of late 2008/early 2009 and regaining confidence that the economy is no longer in free-fall, or deep freeze. People have jumped back into the home buying mindset, as evidenced by the recent robust activity in the local real estate markets. I believe that there are no longer large segments of the population waiting on the sidelines, especially locally.
One can very easily imagine a 2010 scenario where: (1) interest rates start trending higher as governments begin to reduce system-wide liquidity as they start worrying about inflation in a recovering economy; and (2) the supply of first-time home buyers has been depleted due to the accelerative effect of the $8,000 tax credit. If you want a metaphor for the latter, recall what happened when Detroit attempted to wean consumers from the 0% financing and employee pricing schemes earlier in the decade. Their sales dried up due, in large part, to consumers accelerating their buying.
To wrap up, this is a great time to take advantage of some of the incentive overhangs from economic turmoil to leap into the real estate market.