[I just wanted to organize and clear out some thoughts I've had on the current state of the real estate industry.]
I've recently concluded that there are some strong factors in today's market that will apply some significant downward pressure to home prices. An immediate casualty of this occurrence is that the refinance market will be basically non existent. Because there will be more and more properties going underwater, most homeowners will only find some salvation from their existing lender in the form of some sort of loan modification. If no relief can be found here, then these houses will go to the market adding further downward pressure on home values.
Some of my conclusions on the refinance matter comes first hand from many homeowners I've spoke with recently who are in risky pick a payment or pay option adjustable rate loans who basically can only afford a teaser payment and cannot handle what a low 30 year fixed offers. I was horrified at some of the financial situations some of the clients I had spoken to were in. I see nothing but darkness coming out of this segment of the market....ironically this segment is what is often referred to as shadow inventory...
Other data that I've looked at is the increasing mortgage rates we are seeing and rates that most likely will continue to rise. On a daily basis, the buyers spending power is getting reduced and offers will reflect this. Couple this with lower wages these days and an uncertainty of income and economic conditions which further reduces a buyer's willingness to take on a sizeable loan. Again, offers and the eventual purchase and sales agreements will reflect the lower offers. Market values will continue to go down. More bad news for that shadow inventory mentioned above, many of those current homeowners are going to lean heavily on their existing mortgage company for a short sale or substantial loan modification.
Based on conversations I've had with agents on the frontlines today, buyer activity has cooled quite a bit. The opposite should be going on right now. There is a tax credit of up to $8,000 set to expire at the end of this month and we are in the spring market. Yes, there is some activity today but the activity should be red hot and be moving with a sense of urgency.
I think there may be some buyers who have taken themselves out of the market to wait and see where the market is going. Some buyers are actually deciding to save up for a greater down payment while others have a little bit of work to do on their credit worthiness. All of which have an effect on purchase activity. There are also a few consumers who are confident in their ability to afford a home however their uncertainty is if they can afford everything else. The concern here is higher taxes and new taxes that could soon becoming out of Washington to help pay for all the new programs, growing debts and continued spending that the gov't has been involved with.
The good news I see here is that consumers are putting some thought into their decision to buy. Rather than getting caught up in the frenzy of 4-5 years ago, there is more caution today. Going forward and once the market eventually corrects itself, this is very good news. We should never again see the many problems that this market has had to deal with. Plus today we have buyers who are more educated on the process and there are much safer mortgage programs. I also see positive in the fact that house prices are very affordable today and again should remain very affordable going forward. It's just a matter of when each individual buyer decides that the time is right for them.
Financial reform is the new topic in Washington today. The big question here, will new gov't legislation provide new obstacles and further delays to a recovery or can the gov't provide any beneficial stimulus to bring about a healthy real estate market?
Jason
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