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Normalization: Fancy Phrase for Real Estate Slow-Down?

Aug 17, 2007
Real estate people and economists may not like the term "slow-down." They prefer the term "normalization." However, whatever you choose to call it, the real estate market seems to have slowed considerably from its frenzied pace of the last few years.

In some ways, that's good for consumers, because the real estate market has been zooming ahead for a number of years, which has meant that homebuyers--especially first-time homebuyers--have found it increasingly difficult to be able to buy a home they could afford. Economists predict that the remainder of 2006 will look much like the year 2003. That's good news. However, the bad news is that 2003 was a record year for the real estate market at that time.

Perhaps the term normalization sums up the current market best, after all. Everyone knew there was no way the housing market could keep up such a frenetic pace forever. Over the past six months, the amount of time houses in many areas spend on the market has increased. Home values have increased at lower rates, from double to single digits. Builders of new homes have begun to become concerned about an oversupply of homes, which will siphon off some of what had been a strong demand for condominiums.

Meanwhile, buyers who bought their homes a few years ago with adjustable rate mortgages have to look for a way to refinance as the Fed continues to increase percentage rates. Long-term rates have been following short-term rates upward, as well, but lenders have tried to help ease the pain by offering longer mortgage terms, as long as fifty years in some cases.

As the housing market slows down, or normalizes, depending upon your taste in lexicon, sellers have to get more creative in trying to give their homes an edge in a progressive competitive marketplace. Increasingly that means doing repairs or upgrades before the home goes on the market.

However, there seems to be one segment of the market that still isn't showing any signs of normalizing. That segment is the upper end of the market, which seems to be going strong, even in the face of a slow-down in the rest of the housing field. The so-called luxury home market is being driven in part by suburbanites who are cashing in on the boom of the past few years to move up to considerably more expense homes. These buyers also are trending toward moving to urban areas, where revitalization of many downtowns has made moving back to the city much more attractive.

The bottom line: the overall market is returning to what real estate professionals call a more normal state, even if that means a slow-down in sales in nearly every segment of the marketplace. However, if you're a first-time homebuyer, this could be a great time to begin looking for your first home. For the first time in many years, it appears as if we're entering a buyer's market, whether you choose to call it a normalization or a slow-down.

Copyright 2006 Jeanette J. Fisher
About the Author
Jeanette Fisher teaches beginning investors 5 steps to real estate investing. Learn how to profit in ANY real estate market. Free ebook, The Truth about Making Money Flipping Houses http://www.doghousetodollhousefordollars.com
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