I'm gazing into the crystal ball and all is murky. Despite decades of experience in real estate, I cannot tell you how it will be this year.
Never before has there been as much legislative interference in the real estate market. Homebuyer tax credit. Treasury buying mortgage backed securities. Legislation impacting appraisals, lending,...all sorts of things!
Here's what I understand (can't even say know): The Home Buyer Tax Credit expires April 30th. Treasury is planning to phase out its purchase of mortgage backed securities by the end of March. The Home Valuation Code of Conduct is being adopted by FHA (and has been adopted by Freddie Mac and Fannie Mae). FHA is raising its down payment requirements and tightening its credit requirements.
That's a lot of gibberish unless you look forward and try to anticipate the impact on the real estate market. Let's take them one at a time and guess (and I mean guess) the impact.
Home Buyer Tax Credit - there are lots of opinions regarding the impact of this on the market. The general consensus is that it has spurred sales. There have been more sales this past year as a result of this. Generally, though, these sales have been bottom of the market sales that have not resulted in much in the way of move up sales. The middle of the market is still suffering tremendously. My explanation of this is that a good number of the sales were fire sales - bank owned, short sales, etc. - that didn't result in those sellers purchasing another home. One off sales, but we'll count them as sales nevertheless. But you can't help but wonder if a majority of these sales would have taken place even without the tax credit. What percentage of the sales taking place prior to the first credit were bottom of the market sales? Most.
The Home Valuation Code of Conduct - this is causing INCREDIBLE problems in getting anything sold. Recently heard of a property that was under contract. The appraiser came (from afar), couldn't find anything comparable that had sold in the last 3 months (duh!...we're in a really slow market), so said it couldn't be appraised and the bank refused to loan on it. End of sale. More and more, appraisal issues are causing sales to come apart. The criteria for appraisals is nigh on impossible! It's not the appraiser's fault...it's the incredibly tight criteria set forth by the HVCC and the underwriters at the lenders.
Purchase of mortgage backed securities by Treasury - When this ends, what are the chances that mortgage rates will start climbing? Better than good...highly likely. There goes one of the most attractive things going in the market today...the interest rates.
Let's throw into the mix that more and more buyers are steering clear of short sales because they are excruciating for the most part. If someone wants to buy a home, they don't want to wait two months to find out whether they can or not buy (actually know of some short sales that are still waiting for approval after ten months...or longer!). If the buyer is a first timer, can't afford to wait or they will possibly lose out on the tax credit. So are we going to see more foreclosures? I think you can bet on it.
Now let's just talk about foreclosures for a minute. The banks (and governmental and quasi-governmental agencies like Fannie Mae and HUD) have gotten smart. If they own a property, they don't want to keep it. So these properties are coming on the market at bargain basement prices often causing multiple offers and selling for more than their list price. They can be really good deals...but they are impacting the values of everything around them, so traditional sales are suffering and appraisals (see above) are coming back much lower than perhaps they could.
Take all of this (and more) and swirl it around. Now ask, where is the real estate market going in 2010? My short answer is that, despite all the optimistic hype, we are in for another rough year. When will we see a recovery? Well, that's where the cracked crystal ball comes in. Never before has there been a time in my recollection where there has been so much governmental meddling in the real estate market. It is unprecedented. In the past, you could be looking for some sort of recovery starting about now. But we don't know. We've never been here before. Real estate typically ran in seven year cycles, but I don't think that is going to be the case this time...I think it will take longer for recovery because the valley was so low.
Two other things...unemployment and consumer confidence. Without job recovery, there will be less real estate sold. You can't buy a house if you can't pay the mortgage. And consumer confidence in the future is key - you can't sell investment property (or a house) if there is fear that the market will decline further or fail to recover soon.
There's a big HOWEVER here (always end on an optimistic note, I was told): people will continue to need to buy and sell real estate. Marriage, divorce, retirement, larger family...people entering and leaving the housing market. There will still be these buyers and sellers. There were when interest rates were over 12%...there will be now. We just need to keep our expectations low and we will never be disappointed.
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