Bargain hunters may toss a lifeline to housing

Updated: 2008-02-26 09:16

New York - The distressed US housing market should get a lift this spring as bargain prices lure prospective buyers out of hibernation, but tighter lending means no one should expect the boom days to return any time soon.

A sign noting a reduction in price tops the sale placard outside an existing home on the market in south Denver, February 17, 2008. Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month. [Agencies]

Spring is a pivotal season in the housing market. Potential buyers typically emerge from a winter hiatus and shop in earnest for a new home or an investment. The strength of the market in March, April and May usually sets the tone for the entire year.

This year, spring has assumed even greater importance as it coincides with a sharp US economic slowdown, triggered largely by a dysfunctional real-estate market. After sales of existing homes sank almost 13 percent last year, a housing revival could put the economy back on solid ground.

When the housing sector is thriving, so does the economy as buyers spend heavily on new appliances and furniture while owners pump cash into remodeling or additions.

Even in Arizona and Florida, which are among the states most hard-hit by the collapse of the housing market, a few rays of light are starting to shine through.

"If I would have described this whole process as a hurricane coming through Phoenix, I would tell everybody that for the last month I've been taking the shutters off the windows because I think the eye of the storm and most of it is behind us," said Floyd Scott, president of Century 21 Arizona Foothills, which has 10 offices and 460 agents in Phoenix. "Now we're in the process of picking up the debris."

In many areas, the choice of homes on the market has increased considerably, with unsold inventory double the typical supply as foreclosures mount and sellers hold out for higher bids.

Indeed, possible buyers are already coming out the woodwork seeking deep discounts.

Signed contracts that have yet to close were higher in January than any month in the prior six, though down 30 percent from January 2007, said Scott. "We've seen quite a bit of increase in traffic. A lot of people are shopping for deals right now," he said.


But the roadblock to closing the contracts is ominous.

Many lenders are shutting down the money pipeline to all but the most credit-worthy borrowers, looking to avoid repeating mistakes that led to the current wave of bad mortgages.

"One of the difficulties that we are having obviously in the home market is that lending conditions have really tightened up dramatically," Scott said.

While a flurry of sales this spring may highlight the pent-up demand in the market, it probably would not signal a sustainable housing upturn this year, most economists agree.

"We have this continuing battle with tightening lending standards and it's going to be tough for prospective buyers, even though they want the homes -- that's going to be an obstacle," said Young Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

Still, demand is stirring as sellers grow desperate to off-load properties. Fixed mortgage rates are low, and some home prices are looking too attractive to pass up.

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