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Why IMF estimate of 8 years of down housing markets is a sham.

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Services for Real Estate Pros with FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans

MarketWatch published an article today, "Real estate downturn could last 8 years: IMF" in which they headline "The prospects in the global real estate sector are "dismal," with a downturn that could last eight years, the International Monetary Fund warned Wednesday" citing the threats of shadow inventory and resets on adjustable rate mortgages.

Sure, the real estate market is not as volatile as the stock market, but eight years?!  Heck, a lot could happen in one year, for this to drag on for another eight years would require a lot of nothing to happen.  To believe this requires a large dose of lemon-sucking attitude.

Real estate fundamentals are as good as they've ever been:

  • Interest rates are at 40 year lows
  • Home prices are under valued.  I don't know the exact figure, but I would bet good money that to buy an existing home is noticeably cheaper than building the identical home from scratch.
  • The affordability index is up.
  • Areas traditionally used for appreciation investment purposes actually cash flow
  • Baby boomers may be downsizing, but there are greater numbers of echo boomers coming of home buying age.

The problem IS NOT in the homes or directly attributable to the housing market.

The problem IS the economy.  People are not buying due to fears of job stability or lack of a job as we drag along at near 10% unemployment and another 10% under-employment.  As soon as the economy begins to recover, so too will housing (assuming you define that by increased sales volume and prices).

The housing slump will not last beyond job recovery. If you are predicting 8 years of a down housing market, then you must be predicting 8 years of high unemployment AND you are predicting 8 years of minimal inflation.

The moment the economy strengthens and people feel secure about employment, then we'll have more home buying.

The moment inflation (or hyper-inflation due to all the fresh fiat money) kicks in, we won't have any more homes underwater.  People will be able to refinance and all these failed loan modifications will become irrelevant.  Delinquencies will similarly dry up because people will want to keep their home/asset or will sell it for a numerical profit.  Short sales will be a thing of the past (at least until the next cycle.)

When either jobs or inflation kicks in, we are actually at risk of rapidly increasing home prices. When will that change, I don't know, but if it takes 8 years we will most likely have gone through two more administrations.

As for me, I'm going to make my own economy to get back to investing in homes while they are cheap.

John Ryan
Century 21 Alliance - Havertown, PA

Tough to say what values really are because the markets and the economy have not recovered yet, the correction continues........

Oct 06, 2010 11:37 AM
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

Certainly price swings have been different throughout the country.  With that in mind and even in a depressed economy, it seems few houses can be built as cheaply as you can buy an existing one - so in my mind, that puts prices at less than value.

In fact, we went to sell our home a couple of years ago and discovered that - completely ignoring the cost of land - the same house could not be built for what we would be able to sell our home for.  Consequently, we decided to keep it (a decision reinforced by a lack of buyers).

Oct 07, 2010 08:10 PM
Amy Law
Alliance Properties - Crosby, TX

But, a big part of the problem, is that the financial crisis that hit you guys in California in 2008 has just, in the past 9-12 months started to impact markets in the South, such as Houston, Beaumont, and Louisiana. It is an economic WAVE, it did not hit every market at the same time.

Yes, there are great deals out there, but if even the most perfect buyers are having problems qualifying for a mortgage loan, then it will be a very slow, low market.

Oct 08, 2010 12:34 PM
Kathy Smiley
Rodeo Realty ~ Fine Estates Westlake Village - Newbury Park, CA
"Real Estate results that make YOU smile!"

Since it hit here in So Cal first, I'm hopeful we'll lead the way out of it. I'm already seeing a number of move-up buyers in this market. It's just tough to get them out of their current home, but they know the value of moving up when rates and prices are low. Go California, GO!

Oct 08, 2010 01:27 PM
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

Yes, I just saw a report that the biggest gains in property prices over the last year were mostly in CA.

Oct 11, 2010 06:26 AM
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

Amy, you wrote: "... if even the most perfect buyers are having problems qualifying for a mortgage loan"

As a lender, the "most perfect buyers" are going to be the "most perfect borrowers" so they should not have any difficulty at all.

I guess I need to ask why you think they are both "good" and "having problems"?

Oct 11, 2010 06:28 AM