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My Real Estate Blog| | | Thu, 08 Oct 2009 03:55:00 +0000 | | |
Where are we now?
1. The good news – we’ve wrung a lot of inflation out of the housing bubble. Looking at the Case-Shiller index, Los Angeles house prices dropped about 30% in the 1990’s recession and we see a similar drop today. In the 1990’s it took 10 years for LA prices to recover to their peak. How could this be good news? It may mean prices are in sight of a bottom, and we’re in for a long period of low but stable growth. Not a V, W or U shaped recovery, but a tilted L. I don’t see how a quick recovery in housing prices could be a good thing anyway – we don’t want another crisis in confidence.
2. The good news within the bad news – although at record highs, the monthly rate of the newly unemployed has been dropping as have the rates in mortgage delinquencies and foreclosures, while the number of loan modifications is increasing.
Some of the housing delinquencies may be voluntary, as some homeowners appear to be withholding payment in order to gain lower interest rates. Also, many foreclosed owners are now free of a burdensome debt and are rebuilding their financial lives.
Foreclosed home prices, at least at the low end, appear to have stabilized, and thanks either to the banks’ inability to work as fast as a real estate agent, or a conscious effort to limit supply and keep prices up, supply is not matching demand, resulting in bidding wars.
Local home prices in some price ranges have dropped to around 2002-2003 levels which is good for buyers who hadn’t bought before the bubble. If we are at the bottom, prices will gradually increase (on average – there will be seasonal bumps). It is bad news for Sellers who bought during the bubble, but at least there will be buyers at the right price when they feel the market has stabilized.
Obtaining mortgages is more difficult – we now allow 45 days on a financed closing, but Jumbo loans are back, and the feds will subsidize certain mortgages through the first quarter of next year.
3. The bad news - there is another round of foreclosures coming from Pay-Option or Negative Amortization loans. These are beginning to reset, and will continue for about two years. These will more affect higher end homes than did the sub-prime, low credit score loans. Higher end sellers should carefully consider low offers as it could get worse. Also, a lot of high-end inventory has been held off the market, and it will return with signs of recovery, keeping prices down.
Buyers can wait, but they may be risking price increases arising from a weak dollar bringing in more foreign buyers, higher interest rates, or inflation, and of course, that perfect home.
By Wayne Longman, Broker Associate, Team Haverkate |
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