Home : Blogs : Paul McFadden Mortgage Loan Originator Bellevue Washington Home Loans : Washington Mortgage Planner-straight up mortgage advice and commentary

When will the market correct? Your predictions please.

Good morning! I just finished reading the Seattle Times online (www.seattletimes.com) about J.C. Penney announcing reduced earnings forecasts for the first quarter of 2008. What followed were a series of short interviews with people around the nation about the state of our economy. Most of them said that they were cutting back. Yes, there's still a huge air of uncertainty out there about where our economy is headed. Probably quite a bit of it is psychological in that unemployment is still fairly low (4.9% at last count) and wages are not declining. Some of the data is real though such as higher gas and food costs.

We've been luckier than most here in the beautiful Northwest but the real estate market is still awfully slow. I haven't done any purchase transactions this year with realtors and the few clients who were interested in buying decided to rent for now. That's in spite of the fact it's a buyers market with low interest rates and high inventory. One of my friends who is an experienced loan originator has gone from a high of 120 transactions/year to 60. And they're the top producer in their office. So the signs are all around us that the market and the economy are slowing.

My question to you is how long do you think this slowdown will last? Generally, an economic downturn lasts 15-18 months. Which begs the question when did this all start? In Seattle, business was much slower in 2007 and ground to a standstill starting the end of last summer. That would make the case for a rebound starting near the end of this year or the first part of 2009. I've seen some pundits claim that the housing market won't start correcting until 2010.

There have been a number of positive measures taken by the Federal Reserve or by private companies (think Bank of America's proposed merger with Countrywide and Chase's proposed buyout of Bear Stearns) to right the ship. But I still see lenders tightening the belt. In other words, it's going to take some time to rebound. Most of the time these days, I have to inform borrowers that I can't help them given market conditions.

I personally believe that a correction will start next year. And it will be nice to have. In my business, we've endured hit after hit. I realize it was necessary and that there needed to be some weeding out. Those of us that are in it for the long haul will survive. It would just be nice to bear the fruits of our labors once again. Right now it's very tough. As always, I welcome your thoughts. What do you see out there? How are you coping? Let me know. And have an awesome day! There is always a silver lining!

Paul

Posted by Paul McFadden Mortgage Loan Originator Bellevue Washington Home Loans on 03/29/2008 09:45 AM

Comments (41)

economic predictions the housing market mortgages buying a home refinancing seattle economy the economy

Post is included in group: Mortgages
Post is included in group: All About Mortgages/Mortgage Networking
Post is included in group: Christianity and Real Estate
Post is included in group: Mortgage Professionals

41 Comments on When will the market correct? Your predictions please.

MAR

2008

Paul- If I could answer that question, I would be so filthy rich it wouldn't be funny!!!

Paul, We are seeing a marked increase in open house attendees, requests for showings, walk-ins and sales contracts. Sure hope it signals a return to normalcy, whatever that is.

We're very active, showing properties, lots of website activity. But, many buyers are still on the fence waiting for a sign that now is the time to jump in!

I watch the Seattle market closely as I eventually want to buy a 2nd home there myself. Like my own clients here, I'm fence sitting as well. But last month was the first month that reports for Seattle actually showed a decline. I wonder if you're only at the beginning of the real estate downturn, where as some of us are hopefully closer to the bottom and maybe even on our way out of this?

Even after the financial markets are straightened out, it could take several years to restore consumer confidence in real estate. There is a ripple effect which comes from over a million foreclosures (and more on the horizon).

When the news media gets tired of beating the "housing crises" drums, qualified buyers and waiting sellers will realize the true picture of stability in the market. What you focus on, is where you drive.

Let's also remember the hype we see in an election year. I'm tired of it for sure!

Thanks, Joy. for your comments. I agree with you. Eventually the media will move onto something more interesting. The election, the closer we get, may help as it will take the focus off us for a bit. Take care.

Eric: I think you're right to a point. My only comment is you can only stay down so long. And we've been down for a while now!

Hi Paul: It's funny you're looking for a 2nd home up here. The reverse is true of us! I think you're right. Things always hit us last; I think we're due for a recovery next year. It's possible some markets will correct sooner.

Bill: That's great news. I know you guys have been hit pretty hard in Florida. Good luck to you.

Jeremy: Me too! I guess it was never really about the money for me so who cares!

May you all have a blessed day!

Paul

Risk, of course, is what makes some people rich, so it will eventually turn around, because those folks will sense a bottom and start buying expecting great returns on their investment, and like the falling dominoes, others will follow.

Problem is, no one really knows when that will happen, but a good guess is, we can't sit still for long. The urge to spend and improve our lives is very strong. We sometimes just have to see someone else make the first move. We have more followers than leaders.

Don: That's a great comment. I agree with you. I think everyone is just waiting to see who is willing to jump in first. In the meantime, the brave are encountering the perfect storm and getting some wonderful opportunities. Have a great day!

Paul

In the Puget Sound, heck, all of washington for that matter, we were the last ones out of the 2001-2002 recession. Historically, going all the way back to 1890, we have always lagged the national economy by 12-18 months, both getting into and out of recessionary blips. Our employment factor is very strong, at least in the Puget Sound core...I'm hoping we don't experiencing anything like the FL, AZ, CA, OH, but we are still going to take some lumps. I'm looking toward 2011 as a pretty good year, the 3rd year of Obama's term we will hit a pretty good stride again.

Thanks, Rich. 2011 is a while to wait for the boom times again although I have to admit I started (2006) when things were slowing down. Thanks for your comments. I enjoy your historical perspective. Take care.

Paul

Hello Paul. Nice post. I think that the country's been slammed hard and that it will take between seven and ten years to recover; about the same amount of time it takes for a bad credit history to be discharged from a debtors record. I realistically look toward 2016, about eight years, for signs of financial liquidity in America because of what happened to borrowers over the last seven years, including the expected losses incurred by investors of sub-prime, b-paper mortgage backed securities, or other instruments relating to or for people with a poor credit rating. I blogged earlier that I don't, and won't, believe anyone that says it's just a temporary thing, and that recovery is on the near horizon, nor anyone who appears to be a cheerleader for the industry with phony enthusiasm, and there are lots of them out there looking for your borrowed money. It's harder to get financing to buy a home than ever unless you have next-to-unblemished credit, part in thanks to House Resolution-3915, and that's part of the core of the slowdown . I do highly appreciate your optimism, however, Paul. It's also great news, and reassuring, to hear that commerce is good in your beautiful region. Have a great weekend.

When sellers will allow their houses to be priced where the buyers are buying and not one second before!

Someday soon we'll all reflect back on the tough times and say, "Remember 2008??" Those of us that manage to survive the cycle, will be that much stronger and prepared, the next time we hit a downturn!

I can see a few things starting to move here. Yes it's a great time to buy but buyers have to be convinced of that fact. They have to stop reading the depressing news and move forward and purchase more home then they could have if the market was booming. That is the only way it will start.

Paul,

I see many more foreclosures on the horizon because a lot of the adjustable loans made in 2006 are about to reset. Our market is not taking a steep decline like the other markets because we did not experience the rapid appreciation that was experienced elsewhere in the country. Some of the buyers here are sitting on the fence waiting for the interest rates to drop more. Some simply just cannot get financing right now.

Thanks, Sara. I agree with you. The longer the "normal market", the sooner sellers will realize they need to be realistic!

Thanks, David, for your comments. Of course we all hope it will be sooner as opposed to later. In the meantime, there still are tremendous opportunities for those committed among us.

Paul: I think it's o.k. to go through a challenge. Number one, it weeds out the pretenders and two, it makes us realize that we just need to go to work!

Robert: That's good to hear. I believe other parts of the country are recovering ahead of us. I'm happy for you.

Hi Renee: I'm seeing that as well. In my business, more often than not, I'm having to turn people away. They just don't qualify right now.

APR

2008

I've enjoyed reading your postings as well as the input from around the country. I live at Lake Powell in Arizona which is certainly a different market. We have a small community that is trying to grow even being surrounded by the Navajo Nation and the Glen Canyon National Recreational area. We generally don't have enough housing on the market for the number of buyers. This year it has changed and we now have buyers waiting longer to purchase and sellers are becoming very nervous about the market.

APR

2008

Thanks, Judy. I appreciate it. Good luck this year. Eventually the market will turn.

Paul

I'm a mortgage broker in Florida and I can tell you that the one thing that MUST change is the foreclosure situation. As long as the news keeps reporting record foreclosures, buyers are going to timid. They figure, I'm okay, these other people bit off more than they could chew. Then, someone they know and perhaps respect is foreclosed upon. Or, they hear a story that hits too close to home and they become defensive.

Like a turtle, it's safest to pull your arms and legs into your shell and wait until the danger passes. The danger IS foreclosure and although it can't happen to me, it's happening all around me, so what make me so special?

In years past, an investor could borrow 100% on an investment property and enjoy a 20-40% gain in equity per year. A home owner could buy a much nicer home than he/she could afford because they had a mortgage with a 1% teaser rate. Self-employed borrowers could "state" their income beyond anything within reason and get a loan the size of their ego. That wave past us by a year ago.

So, the foreclosures started and that wave has come strong and hard. When will it subside? Could there still be people out their putting mortgage payments on their credit cards? Those hanging by a thread have long since plummeted by now. Gas prices have had to have sped up this un-welcomed cycle too. Surely, smart investors have all exited the market long ago, and are now itching to return.

I think we've made it! I think by the end of this year, especially with the presidential election, that most people will be willing to make a move. I think we will see a new waive of "first time home buyers" and responsible investors. Interest rates are low and prices are too! Buy low, sell high, right?

I am personally researching investment properties to buy. The deals out there are UN-REAL! I believe I am ahead of the curve, but not by much. The average Joe will soon realize that a job in another state will benefit him most, or that buying IS much better than renting.

I hope I'm right!!!!!!!!!!!!!!!!

Hi Rebecca: I don't think you're too far off the mark. Time will tell although I would argue a market can only be down for so long. Take care.

Paul

Paul,

We seem to be in the middle of a recession right now, despite what Washington says. Stats that are floated out there are generally 6 to 12 months old, so when we are statistically starting to head up, the recovery has already been going on for half a year or more. My money is on the recovery beginning this year, in the fall.

Slow all of 2008 and 2009 and maybe into 2010. It won't be a boom until 2020 like we had the past few years. Need a chance for wages to catch up.

APR

2008

Hi Esko: I've heard that from more than one experienced source. let's hope so-it would be nice.

Brian: Thanks for your comments. I wish is were sooner but you may be right. Take care.

Paul

APR

2008

"I'm looking toward 2011 as a pretty good year, the 3rd year of Obama's term we will hit a pretty good stride again."

Shut up Richard!

"I'm looking toward 2011 as a pretty good year, the 3rd year of Obama's term we will hit a pretty good stride again."

Shut up Richard!

OK, Here on the coast of California, we may have hit the price bottom. we are seeing multiple offer situations on many properties. I think, however, recovery will be regional. Do I think we are headed back into the "feeding frenzy" of the last few years, hopefully never. The only forecast for a market like that is a disaster to correct it. We have a median price that is over what is was 2 years ago. $1,195,000. The median income level is 60K a year. The only buyers we are seeing are either out of town/country buyers for 2 mil + or entry level buyers (here, that means under 800K) Volume is still way down (# of sales). There is still a disparity between income and housing prices here. It was never a job driven market here anyway...it's more of a resort market (Santa Barbara) . I wonder what the feds new "bail out" package will do...or if it will even affect our market here (keeping the homeowners out of default, fed loan program).

It will be interesting to watch, that's for sure!

APR

2008

Thanks, Richard. It would be nice to see a positive correction starting next year. We'll see.

Thanks, Kim. I would imagine that your buyers are second-home sorts for the most part. I've heard that market is pretty soft right now due to uncertainty. I'm not sure the Feds. bail out package will accomplish much. I tend to be a free market kind of guy so am not sure that these measures work. It's a nice thought but perhaps a little bit of too little too late! Have a nice day!

Paul

MAY

2008

I think if you look at this like the letter "U", we are coming right to the bottom.

Rebecca: I think you're right. Of course it's been a bigger U than we would have liked and now we're impatient about a quick recovery. Time will tell. Take care.

Paul

Hi Paul, not quite sure why the anonymous poster was so hostile about my Obama humor...didn't intentionally want to invite acrymony to your post. It always amazes me that people feel the need to be anonymous when going postal on someone.

MAY

2008

Finally it seems that the national media is admitting that they are reporting incorrectly for the whole country. If we all blog what we are seeing in our local markets in detail, then it should help. Even in Arizona, Tucson/Pima County has been lumped into the same market as Maricopa County which we are not.

Check out my recent blog post

http://www.tucsonhomesforsaleguide.com/blog/99/tucson-real-estate-market-news.html

Thanks, Anne. I'll check out your blog. Up here, practically every zip code is a declining market for now.

Thanks, Rich. Who the heck knows! Why people get all worked up is beyond me. There are definitely more important issues than what we do. Take care.

Paul

MAY

2008

I predict we won't see a halt to the slide in home values until 2012. By then, most ARMs will have been reset, and we will be through the bulk of (if not all) the foreclosures. It will be another several years before we really begin to see any appreciable increase in home values.

Lewis: That's worst case scenario. I think an upturn may start as early as next year but a boom may not be until 2012. Typically real estate downturns last 15-18 months followed by a long and slow recovery. In the Seattle area, we're seeing flat to slightly down prices. I expect that to continue for the next 6 months or so. Hang in there; the strong will survive!

Paul

MAY

2008

Paul

That's my take and I'm sticking to it. Here's why:

I don't think we're in a "typical downturn" given the "credit crisis" and current rate of foreclosures. This is putting downward pressure on home prices - too many homes on the market, and not enough buyers to buy them. That doesn't mean some areas won't rebound faster than others - I think some will. However, my prediction is based on the overall average for the country, not on a particular region. Yes, some areas are not in that bad a shape in that the downward trend has stopped while some areas are enjoying an increase in values. In areas that are still declining, some areas will see a slowdown in declining values sooner than others, while other areas have been and will continue to be hit hard for a few more years. I think the overall nationwide downward spiral trend will slow greatly by 2010 (which is only 19 - 22 months away), but not stop until 2012. By then, I think we'll be in a normal market for a few years before overall values nationwide begin increasing again.

Many people still have ARMs and Option ARMs that are due for adjustments, and will be so for a few more years, and for most if not all that means an increase in monthly payments. Many of them will be denied the opprtunity to refinance because of credit issues and/or declining values, and with food and energy prices continuing to soar, these people will be faced with a very real dilemma: choosing between paying high food and gas prices or paying for the roof over their heads. Or go deeper into debt to try and stay afloat. I think some of these people are going to go into default, and the foreclosure crisis will continue for another couple of years.

Now, if the government is willing to bail out the banks that got themselves into this mess, then perhaps the government should also bail the people out to help them out of the mess their in. I'm not a big proponent of bailing out the banks - you don't charge higher rates for higher risk, then cry foul when the investments goes south. But because the banks cried foul, and because the government is using our money to bail them out, then perhaps the government should also bail out the people who are in this mess as well. If they do, then I'll revise my predictions. Until then, I'm holding fast.

wow. i read every response to see what others are predicting and find it interesting how certain areas look at the market. I personally think that this will be the year we " bottom out " and that we will not see a boom for a while but by spring of 2010 you will see 100% financing available and guidelines will start becoming more aggressive. Even though the sub-prime companies are a partial cause of this, the profit margins are high enough that they will be back when the market turns.

Hi Lewis: Your thoughts are good ones. The one thing that may speed up a correction would be the lenders loosening their guidelines a bit. In talking to my wholesale reps., they indicate that may start to happen within the next six months. If that holds true to form, it will be easier for people to buy houses or refinance again. I don't think it will ever approach what we once had (100% financing for 600 credit scores) but you know it's tough when large jumbo loans are priced over 7% (in spite of these borrowers usually being the most credit worthy) and self-employed borrowers with assets get denied. The pendulum has swung so far one way; expect it to swing back a little bit by 2009.

Charlie: It would be nice if we saw some positive indicators starting next year. A friend of mine thinks this Fall. And he's been in the real estate business for over 30 years now. We'll see. Take care.

Paul

MAY

2008

I have read all the posts here and there is certainly a diversity of opinions. One factor that has not been addressed in depth is the number of investors who will NOT be helped by gov't plans to help homeowners stay in their homes. Pres. Bush addressed that issue this morning after his meeting with Paulson. Let me give you an example in which I am an unwilling participant:

I moved to Tucson AZ from Florida last August. Knowing that the real estate market was soft, I elected to rent rather than buy until I could get a better feel for this new area. We were fortunate to find a home to rent that had been a model home in a new community just north of Tucson. The owner of the house informed us that he had purchased the house $100,00 UNDER the original builder's $500,000 asking price. He paid $400,000 and bought it with NO MONEY DOWN! He had owned it for just under a year when I rented it last September (2007). I did a quick Zillow on the house and found that Zillow valued it at $380,000. I rented it for $1,300 /month. I calculate that with a no-money-down loan on non-owner-occupied property, his payments (with escrows) must be around $2,800 per month. This means he is taking a $1,500 per month bath on this home. In addition, a Zillow search yesterday (May 19, 2008) valued the home at $338,000, which is $62,000 less than he paid and $42,000 below last September's value. This is a 2 story, 3000 sq ft home with a pool and a million dollar view of the Catalina Mountain range. I could not buy this house for what I pay in rent and I am losing NO equity by renting. It makes no sense to buy right now. However, the owner is in an entirely different position: Considering he has lost $62,000 in equity PLUS $1,500 per month in negative cash flow for the last 18 months, what incentive does he have to keep the property? Right now, in this small community of about 100 homes, there are over 20 homes for sale and most of them are available for rent because they have been on the market for so long. I live in fear that one day there will be a knock on my door and a bank representative will tell me I have to move because the lender has foreclosed on the owner of the house.

How many other investors are in the same position? How many more homes will enter foreclosure that were investor owned? In Florida, about 30% of my clients were investors, not occupants.

We have friends in Florida that flew out to Phoenix at the peak of the boom about 1 1/2 years ago and bought 3 homes for investment, totaling about $1,000,000. They have a negative cash flow of about $1,800 per month and the homes have lost over 20% of their value. They are seriously considering letting these homes go into foreclosure.

If one adds investors like these to the homeowners in trouble, the foreclosure problem will probably affect the real estate market for at least another 4 - 5 years. It's all about supply and demand and right now the supply seems endless.

Carl: Investors and homeowners in trouble equal the mortgage crisis. if you look at Las Vegas, for example, most of the foreclosures are on investor-owned homes. I heard a statistic that 43% of the homes owned in Vegas were owned by investors. What does appear true is that the downturn will continue longer than anticipated. If you peg the downturn to have started in earnest during the summer of 2007 (this is when the lenders really put he brakes on), then a recovery would start in the beginning of 2009. Typically a recovery starts about 18 months later. We'll see what happens. Right now my business is really picking up. I'm not sure why although it's almost summer plus I work extremely hard for my clients. Time wil tell. In the mean time, I'm glad there's been a shakeout in the ranks. Too many people in my line were unprofessional, greedy, and misinformed. Have a nice night!

MAY

2008

Hi Paul, your reference to non-owner occ reminded me of Bellingham...2005 and 2006, upwards of 30% of the SFR purchases were by investors...not sure about their financing structures but we all know that Aurora, et al, were doing stated 100% non-owner financing...So far, B-ham has fared pretty well, but they do have some exposure. Non-owner occupied financing is where refi's go to die.

Thanks, Rich. I think Washington State, although somewhat insulated due to a diverse job market, will still have some hits over the next year. I have a feeling, in fact I know, that investors were speculating here as well! Have a great day!

Paul

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?