It seems like I am asked this and many other questions from both buyers and sellers on a daily basis. Are home prices going to continue their decline? Are interest rates skyrocketing back to 10%? Are lenders going to keep going under? What about foreclosures?
There is no simple answer, yet hundreds of experts on the subject. I don't claim to be a so-called expert but I don't see how these "experts" can sit behind their desk and estimate. The truth is you can't compare one market to another like most experts do. So let's take one question at a time.
Are home prices going to keep going down?
The basic answer is yes. The complicated answer is yes, but here is the best part. From what I can tell 2007 was the worst year for real estate and probably the worst part will be over by April 2008. Homes have fallen an average of $50,000 across the board from their highs. I feel that the average price over the next six to nine months will drop another $10,000 to $20,000 before stabilizing and by the end of 2008 beginning of 2009 the prices will start to rise at 2-4% annually.
Home sellers are still going to have to give incentives both to buyers and their agents to get their home sold. They are going to have to list with someone who has experience in getting homes sold in a "down" market. No more can an agent put a sign in a yard, put it on the MLS and get it sold in 2 days.
Buyers should not be afraid to buy, if they are buying for long term. Most first time buyers live in their first home for 3-5 years before upgrading. By then they have enough equity to put a down payment on their new home and are used to making a payment every month and getting the tax breaks.
With the price declines and low interest rates buyers should not be sitting on the fence waiting until the worst is over. They should be jumping in to get the best possible price and interest rates to go with it!
Are Interest Rates Skyrocketing Back to 10%?
No. Interest rates are adjusting for several reasons. First, the sub-prime mortgage market mess. No longer can lenders give you a loan with the only qualifications being, 1) you have a pulse, and 2) you have a credit score. Lenders made a mistake in lending to anyone and also taking on more debt than assets.
Second, the foreclosure aspect. Bad lenders and brokers making loans to people who could not afford them to start with and then knowing they would adjust in two or three years, probably forcing them into foreclosure. Most of those lenders didn't care since after they got their commission checks their job was done.
The third factor is the scared investor. After a typical loan is funded they are then packaged into a bundle of 100 to 1000 loans and sold to investors who collect the interest on the money. These are called mortgage-backed securities.
There are several problems here. First being that investors wanted a higher rate of return on their money so they invested in the sub-prime mortgages that would yield an average 6-7% return on their money. Not bad since the highest savings account paid an average of 4.5%, and they had the collateral (the house) to back it up. Prices were rising so fast that even if they had a few go into foreclosure, they could probably sell the house for more than was owed, still making money or breaking even.
Enter the problem. House prices started falling and foreclosures started rising. Houston....We have a problem. Now we have loans worth more than the house is worth (being upside down) and all the investment companies are going under or stopped buying the mortgage-backed securities. This creates the problem of having too little cash flow coming in to lend to people and more going out. The effect is interest rates start to rise, but not to a level of 10%. I think they are going to stick between 6.5% and 6.75% for a typical 30-year fixed conventional.
(I could go on about this but I think I made my point)
Are Lenders Going to Keep Folding?
Here is what I see happening in the mortgage market. Most of the sub-prime lenders are going to disappear over the next year or start doing "Alt-A" loans (better credit with nominal risk). No more lending to people with below average credit and no assets.
Conventional lenders are going to stick with doing conventional & jumbo 30, 20, 15 & 10 year notes with a few Adjustable mortgages remaining around, not investing in sub-prime markets. The so-called Option ARM's will be going the way of the do-do bird for the most part. A few will remain for investors or people with a loan-to-value under 70-75%.
100% Financing will be changing. You will need full documentation (no more stated-stated), need lots of verifiable reserves (3-6 months), and credit scores above 680 for all borrowers.
FHA is going to be coming back in the next three to six months if President Bush signs the bill increasing their limit to $500,000 in higher priced counties and $417,000 for other counties. Also they are going to add some new programs and reduce some or most of their fees. Also I think they are going to be helping people in bad mortgages to re-finance, although I think it is six to twelve months away.
Are Foreclosures Going to Keep Rising?
Yes, but only for a little while. The next twelve months are going to be crucial since there are lots of hybrid mortgages that are going to convert to adjustable mortgages in the next 12-18 months. However, if FHA is going to start helping borrowers out of bad loans and into a standard 30-year fixed (or perhaps longer terms to avoid payment shock) then foreclosures will stabilize and so will the market.
Overall I see 2009 as the Real Estate Market stabilizing back to normal with prices rising an average of 2-4% annually and interest rates around or below 7%. The foreclosure mess will stabilize and start dropping again to normal levels.
Charles Tharp
;)
Links;)
Tags (Tag Cloud);)
Archives
Posted by 
Amazing your post is featured without comments...I like it...So what advice do you have for real estate agents for 2008? Just wondering...
Karen Monsour, Realtor, Fort Lauderdale, Fl