My 2008 Real Estate Predictions-Revisited and Revised August 1, 2008
It's hard to write a blog that contains downbeat news. 2007 was just awful for real estate. And, 2008, I believe, will even be worse. Wow! How true.
This housing depression is almost as bad as the depression in the 1930’s. Some people feel it is worse!
According to RealtyTrac there are over 200,000 homes a month in the foreclosure process, and they expect that number to increase. By next summer we may have 2 million homes across the country in the foreclosure process.
Yes, the Case-Shiller monthly housing report of 20 major metropolitan areas has shown that every area has decreased housing prices and increased inventory. In my sub-division homes have dropped anywhere from $75,000 to over $100,000 in price.
And market times have increased. And, this means:
1)Increased Inventory. More and more homes coming to market. Yes, lots more homes just sitting, for months in many cases. In fact, many sellers have opted to rent their homes. And, the rentals are also sitting.
2)Increased Market Time. In Naperville currently it's about six months for a home to sell. The average market time is six and one half months. The average list-to-sell is 94%. In the past six months about 67% of the listed homes have sold.
3)Decreased Prices. Sellers who have to sell will reduce their price. Most sellers have reduced their prices by 10 to 20 per cent!
4)Increased Inducements. Sellers will offer to pay for closing costs; homeowner's association payments; and repairs. More seller contributions to get to the closing table.
5)Tighter Lending Requirements. Those marginal buyers who might have purchased a home two years ago are now shut out of this market. Indeed. Especially when purchasing a condo or townhome with an association. The underwriters want every document. They’re even reading the budgets and checking out the reserves. This is also taking longer to get to closing.
6) Fewer Relocation buyers. If a relocation buyer cannot get his home sold, then he's not taking the new job. Or, if the relocation appraisal price to buy his/her home is too low, again, he/she may not take the job. And, as so many companies are “rif”-ing (reduction in force), many new hires are rightly concerned that they may not have a job a month, or six months from now. And, also the number of companies filing for bankruptcy has increased exponentially. And, companies are downsizing both in physical locations and in employee numbers.
7) Fewer buyers. Many buyers are afraid to buy and watch the value of their newly purchased home decrease. So, they will continue to rent for another year or two. Why buy now if prices will be lower next year? Good point, although sometimes you just have to bite the bullet. If you’re planning on staying in your newly purchased home for five years, you should be fine.
The effects of the "sub-slime" mortgage mess will be felt within the entire economy. The notion that the credit problems can be "ring-fenced" or limited are naive. Someone or somebody will have to come in and rescue the lenders, the builders, the insurance companies that underwrite these loans. If it is the government...then, in essence, it will end up being the tax payers.
Hmmmmmmm. I must have a crystal ball. Could you have imagined a credit mess this worldwide?
The general economy will slow as gasoline stays above $3.00 a gallon (currently it's $4.00 a gallon) and heating oil continues to climb. There will be less discretionary funds available for home improvement, home decorating, eating out, entertainment, vacations, hotels, airplane flights and purchasing new cars. Food price will continue to rise as the cost of grain will increase as we manufacture more ethanol from corn. We've seen the reports that consumer spending was at the low end for holiday gifts. And, the only area showing strength was electronics.
The consumer's pockets are near empty and his house, which was his personal piggy bank, is not longer worth what it was two years ago. And, as most Americans, we live from paycheck to paycheck and have little to no savings for an emergency.
In our Naperville market, prices will continue to come down and market time will expand. In my sub-division, a home which was priced originally at $630,000 finally sold at $500,000. And, its competitors are still on the market...unsold.
Buyers will need some money for a down payment to purchase. At least 3% for a FHA loan. Now, it will be 3.5% down payment, plus 1.5% for FHA insurance.
And, documentation and verification will be required. Buyers will wait as they expect prices to continue down. The question is how long until prices start to go up? No one really knows. We can guess. Perhaps 18 to 24 months will be necessary to get the inventory cleaned out.
I now expect that we’ll see improvement in the Spring of 2010, that’s almost 2 years out.
It's going to take time...after all the bubble was approximately five years so it would not surprise me that we have another 2 to 3 years left. And, that can be a very long time.
The lower end of the market will have more activity as those prices are reasonable and affordable, especially if interest rates stay under 6.5%.
The higher end of the market, especially the million dollar spec homes will sit and sit and sit. And, it amazes me that several builders are still putting up these McMansions…which just sit and sit. There are several million dollar homes near Hobson Road which were built in late 2006. They are still unsold!!!
However, this too shall pass! Do we have the patience? That’s my mantra…patience and more patience!
Copyright 2007 and 2008 Move UP to Naperville Blog, Eileen Landau
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