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With house prices still hanging down around historic lows, some experts have posed the question: Why aren’t more people buying homes? It’s a legitimate query. Judging by real estate price cycles in the past, when prices sink to this level there tends to follow a period of increased buying, which drives prices back up. But this time around, in the wake of the foreclosure crisis, low prices do not seem to be attracting new home buyers back into the market. Here are a few ideas why.

Changing Job Market
In case you haven’t noticed, this ain’t your grandfather’s job market. Gone are the days when a snot-faced new college grad went to work on the lowest rung of the company ladder, worked his way up over the years, and retired with a nice gold watch and comfortable pension. The modern job market is young, transient, and information based. While more and more people are figuring out ways to work from home, many more have come to the realization that they must go where the jobs are. And the jobs they find are more likely to be temporary in nature. It’s tough to buy a home and set down roots when you’re hopscotching around the country looking for work.

Credit Contraction
This one is a no-brainer. One of the primary reasons we got into this foreclosure mess in the first place was the prevailing lender practice of offering too easy credit. Five percent down. Zero percent down. The joke that all you needed to get a home loan was a pulse seems to not be that far from the truth. At Uncle Sam’s behest, lenders from all over offered up wild sums of money for new homebuyers, resulting in monthly mortgage payments that were completely unsustainable given a borrower’s income or lack thereof. This process was repeated millions of times over, resulting in the current mess. But since the federal government has withdrawn financial support, lenders have been forced to return to the bad old days of making sure that an applicant is actually financially qualified for the loan they want. These days you need good credit, a job with enough income to support the loan expense, and you’ll still probably have to put down what seems like an astronomical 25% down payment. Credit contraction is another big reason people aren’t buying homes right now. They simply can’t qualify.

Unstable Economy
When people distrust the stability of the current economy they aren’t likely to run down to their local banker and hit him or her up for a few hundred thousand dollars on loan to buy a house. An unstable economy tends to make a Nervous Nellie of many of us. It’s human nature to adopt a bunker mentality. Conserve resources. Keep your nose to the grindstone. Wait for a better day when it makes financial sense to buy a house again. With the continued flow of wretched economic news, the real estate buying climate is not set to improve any time soon, low prices or not. The ancient Chinese curse goes something like this: May you live in interesting times. Well, the housing market is a little too interesting for the average buyer right now. We’ll just keep right on renting for a while, thank you very much.

Fear of Further Price Decline
Another reason people aren’t swooping in to purchase houses at these low prices is the fear that the market will go lower still. While it might be impractical to think one can pick an absolute market bottom, today’s potential buyer isn’t worried about a momentary loss of some small portion of the value of the home they just purchased. The concern here is that the bloodletting isn’t over yet, and that a newly purchased house might still plunge 25% or 50% further in value. This scares people, plain and simple, especially when the phrase “underwater mortgage” is still bandied about frequently in news stories.

This last point, fear of further price decline, has worked to keep some investors out of the market as well. They’re afraid their investment might take an immediate hit. While this possibility always exists, we at AIPIS strongly believe that now is a GREAT time to buy income producing properties. Now we’re not silly enough to claim every deal is a winner. The basics of screening properties and markets is still in effect, but the bottom line for those who have cash on the sideline and can meet the down payment requirement is you may never see prices this low again in your lifetime.

This is a serious buyer’s market.

The AIPIS Team