While some parts of the nation are still weathering the stormy days of the sub-prime mortgage crisis, there is a sunnier outlook for buyers in the Delaware Valley housing market.
Higher foreclosure rates have led to flat home prices and longer selling times, which is great news for local home buyers, said Steve Storti, senior vice president of marketing for Prudential Fox & Roach Real Estate.
Delaware's foreclosure rate hit an all-time high in May, with one out of every 1,467 homes in the foreclosure process. The 266 filings in New Castle County was also a record, according to a report from RealtyTrac, a for-profit company that tracks foreclosure rates in the U.S.
As foreclosure rates increased, the average price of a home in New Castle County slid to $224,900 in March, down $100 from last March. The average home spent 75 days on the market, more than three weeks longer than a year ago, Fox & Roach reports.
Because there are so many unsold homes on the market, buyers should not expect prices to be bid up by competitors and should not feel pressured to act hastily, Storti said.
“It is a very good time in this marketplace to buy a home,” Storti said.
Delaware’s real estate market remains more stable than other places because it has not seen a huge population influx or the kind of real estate speculation that has led to problems in other areas, said Gerry Kelly, Delaware's deputy bank commissioner.
For example, California and Nevada have weak real estate markets today because prices inflated during the housing boom two to three years ago, and Michigan's real estate market declined because of job loss. Delaware has had neither of these problems, Kelly said.
"There is a certain amount of cautious optimism in the market," he said.
Delaware's rising foreclosure rate pales in comparison to Nevada, where one out of every 118 homes is in foreclosure, or California, where one out of 183 homes is in foreclosure, according to RealtyTrac.
Storti and others in the real estate industry believe the main reason the market hasn’t picked up more quickly in Delaware has less to do with inflated prices and more to do with media reports on other areas that have been hit much harder.
It leads buyers to believe there are problems everywhere, he said.
However, lower interest rates and months of pent up demand will eventually reverse the current trend, he said. The real estate market goes through cycles, like the housing boom of 2004 and 2005, and supply and demand will straighten everything out, he said.
“What you really have is a natural real estate process that was affected by the credit crisis,” he said. “But the real estate market will not turn on a dime.”
It will take several months for home prices to start increasing, according to experts at the National Association of Realtors (NAR). By midsummer, more buyers will be able to find affordable mortgages, which should help to drive up home prices nationwide, the NAR reports.
Government intervention in the housing market is also a possibility. A bill in the U.S. Senate would create a strict regulator to control finances at mortgage giants Fannie Mae and Freddie Mac and permit the Federal Housing Administration to bail out some borrowers with risky mortgages.
Storti believes mortgage lenders learned lessons from the sub-prime mortgage crisis and will follow credit standards more closely in the future.
It is already becoming more difficult for some people, especially those with credit scores below 640, to secure home loans, Kelly said. And although that’s tough for the people affected, the tighter restrictions and mortgage denials are actually a sign the market is self-correcting.
Consumers' concerns about credit are also affecting the market. The average interest rate on a 30-year mortgage climbed to 6.32 percent last week, an 8-month high, as investors worried the Federal Reserve Board will increase the federal funds rate to control inflation.
Homeowners with non-traditional loans, like option adjustable rate mortgages, have the most to worry about if interest rates increase, but those types of loans are not as prevalent in Delaware as they are in other states. That has helped the local market remain relatively more stable than elsewhere, Storti said.
While there are still a few lingering gray clouds hanging over the housing market in Delaware, buyers should be optimistic that clearer skies are on the horizon, he said.
