As long as buyers expected prices to keep rising, the implied real mortgage rate -- home-price increase minus mortgage-interest rate -- was minus 4.8%. This was an enormous incentive to borrow heavily to buy real estate. Result: a bubble.
But recently, the average 30-year mortgage rate was 6.5%, so with home prices up just 3%, real mortgage rates are now 3.5%. And with most potential buyers well aware of the huge excess supply of homes, there's no reason to expect prices to rebound soon. A reasonable person might expect them to fall further, boosting the real mortgage rate further.
Over the past 30 years, there's been a very close association between our measure of real mortgage rates and the pace of home sales, adjusted for the U.S. population's expansion.
By Nancy Trejos
But if you do have to sell, be aggressive and hit the spring market as soon as you can, agents said.
"Put it on the market sooner rather than later and make sure it's priced correctly, and make sure it shows to its absolute best advantage," said Joseph Himali, a real estate agent at Best Address in Georgetown.
Agents said making sure a property looks its best is crucial. Keep every room clean, especially the kitchen and bathroom. Get rid of clutter and remove excess furniture. You might want to consider adding more lighting or plants. More important, make sure nothing needs repair. Buyers are now asking for inspections, which was not the case two years ago.
"Property in beaten-up condition or poor condition, which is not priced to reflect the poor condition it's in, will sit on the market," Worthington said. And be prepared to offer incentives, such as picking up the buyer's closing costs or the condo fees for a while.
By Lauren Baier Kim
Most overvalued U.S. markets
As the housing slowdown continues, which state has the greatest threat of experiencing home-price declines? California, according to a new report by National City Corp and Global Insight, a CNNMoney.com article says. The survey, which determines what housing prices should be using factors such as selling prices, population density, interest rates and income levels, ranks Bend, Ore., as having the most "overvalued" (i.e., overpriced) housing market. Overvalued markets -- where housing prices are most likely to fall -- tend to be in places that saw big price run-ups during the boom, including California, Florida, New York and Massachusetts, the article says. The survey, which looked at fourth quarter 2006 data for 317 top metro markets, found that 157 of the cities had seen price drops during that quarter. The report ranks Dallas as the most undervalued city in the U.S.; Texas lays claim to four of the most undervalued. For an interactive map of housing markets by median price and valuation, visit National City's Web site.
Existing-home sales drop to 4-year low
In a troubling sign for the future, the inventory of unsold homes shot up to the highest level in 15 years, meaning more downward pressure on prices in the months ahead until the inventory glut is reduced.
Sales fell by 0.3 percent in May to a seasonally adjusted annual rate of 5.99 million units, the National Association of Realtors reported Monday. Sales now stand 10.3 percent below where they were a year ago.