Hello again fellow Realtors! Since I became President of the Board of Realtors Association on January 1st, I have been asked by many people (mostly media), when is the proverbial shoe going to drop on the Tri-Cities Real Estate Market. I tell them not to hold their breath waiting for that to happen and then explain why I think that way. Let’s take a minute and review some of the causes for the “Bear” markets in other areas. Here are several factors: 1) Structural economic problems like massive job loss – an example would be Detroit and Michigan where thousands of jobs have been lost in the auto industry. The effect is more houses on the market and less buyers, so house prices must come down to sell; 2) too much “Speculative” buying and selling in the residential real estate market-in some parts of the country “Speculative Investors” went in and bought new construction before the construction process had begun and never planned to live in the house, but instead, “flip” it when the house was finished 6 months later for 25-50 percent more than what they paid. That strategy works great when there is easy money, strong demand and the market is going up. when money is harder to come by, watch out below. 3) Interest only ARM’s, in areas of the country like the Bay Area in California average home prices can be $500,000 to $700,00. Many middle class people can not afford the payments on a fully amortized 30-year fixed rate loan for these price levels. The answer – get an interest only ARM, but watch out when the the introductory rate adjusts upward in a year and you are already squeezed financially. With no equity in your house, the solution many people come to is to just walk away. If enough people do that, the market gets glutted with foreclosures. Again, the prices must come down in order to sell. 4) “Sub Prime” loans – are loans given to people who do not have good credit scores, usually with more upfront fees and a higher interest rate. It stands to reason that many more of these kinds of loans go bad compared to loans given to credit worthy buyers. Our market in the Tri-Cities really does not have any significant amount of any of these 4 problems. Yes, we have some speculative investment activity here and yes, some sub prime loans were written.
Our employment picture here is very good. Our average price of a home is around $189,000 so non-conforming loans or interest only loans are really not necessary. Real estate markets that have more than one of the above factors happening are really in trouble. The Tri-Cities, from my perspective, has none of that significantly impacting us here!
Bill Prussing, Tri-Cities Association of Realtors President 2008