The crystal ball has been a little foggy lately. I was pretty much bang on the money for 2007 and 2008 but my predictions for 2009 were a little off. Primarily due to the massive government intervention in the market. I did not anticipate that level of interference in a free market. I really didn't know what to think about 2010 because of the uncertainty about what the government would do next. It seems like every time one program failed they would start another in 2009. In 2010 they pretty well just let everything expire and crossed their fingers and hoped for the best. Unfortunately without the government programs the market is slowing. The last quarters numbers are pretty convincing evidence that it is going to continue it's downward march. A slow and orderly decline would probably be tolerated but if things start to worsen we will probably see the government step in again. Heck, they already have stepped in again with the announcement that the fed is gonna buy more toxic crap. Other than another tax credit I'm not sure what they could do. Government sponsored low interest loans would probably be the best bet rather than another tax credit we can't afford.
My feeling for the IE is that our market will stay fairly stable. Currently prices have fallen to the point of affordability for most buyers. In many areas it's now cheaper to buy than it is to rent. Investors are busy purchasing rentals and the flippers are hard at work trying to pick them up cheap at the trustee sales. Unless the employment situation gets worse I think the market in the IE will be stable. One possible exception is the market over $500k. Tightening of the mortgage market makes getting loans over $417k harder and there's just not a lot of people that can qualify for homes in that price range out here. So I suspect the high end may fall a little bit. But I think the low to mid priced homes (up to $400k) will be stable.
There are some other factors that might effect out market. The new governor will undoubtedly raise our taxes one way or another. More taxes means less available income to purchase or pay for a home. The foreclosure crisis is not over. Many of the pick a pay loans are set to recast in the next year. The recasts will add another wave to the foreclosure crisis. The resets should not be affected since rates are still very low. And there is still a lot of uncertainty about how fast the banks are going to throw these homes onto the market. So far they have controlled the inventory levels of REO's very tightly. But it's anyone's guess what they will do if the market continues to decline. Personally I think the will continue to trickle them out.
I guess to summarize, I just see more of the same. We may see a slight dip in the median but if it happens it will be because of the high end of the market. I don't thin the low end or the middle of the price ranges will change. So lets here what you guys think.
6 comments:
I think we'll see a slight uptick in the medium price if the high end trends lower.
I'm not sure how the median would go up if the high end falls. The only way that would happen is if the sales numbers really drop off at the low end. If there were more sales at the higher end even though prices fall the median could go up. I just don't see that happening though. Median price is and has always been "just a number". It tells you nothing about actual values and in many cases tells you nothing about which direction prices are going. The median price climbed in most of 2006 and 2007 even though sales numbers and sales prices were falling.
I believe that the market in the IE will not do much this year, bounce along the bottom of the cycle just like it has done since 1968 following a down turn. Until the economy stabilizes and jobs are created in decent numbers this bouncing along will continue, historically this goes on for 18-36 months this time it might take 4-8 years to get back to a sustained upward climb. Keep buying them $500 a month positive cash flow properties and add to that portfolio, not much risk in that equation.
The big problem I see is in the economy, with 5 million homeowners living in their homes and not paying the mortgage once the banks start to prod them to move on it will drain the economy. With 5 million people using their mortgage money to buy cheap liquor and cigarettes while they live free there will be a great sucking noise when they have to pony up rent.
I have worked with over 50 people losing their homes since 2007, from the first meeting to the last I suggest that they save money for their fresh start since they are living rent, insurance and HOA free. The average length of time has been about 18 months without making a payment before they have to move on. When we get to the trustee sale or complete the short, except for one person, none of them have anything saved. The one that had money, pulled $60k out of the HELOC just before they crushed his line in 2008, he had $20k left when we closed his short sale in 2010. Hell, most of them can’t come up with the emergency bankruptcy filing fees to delay the trustee sale, had to start getting payment plans on the filing fees. Since they had no intention of filing BK they only had to pay $50 for the initial fee to get another 2-3 months of free rent.
Things are changing, I have had 10 clients get paper since the 2nd week of December after not a one getting anything for almost all of 2010. My longest running client this time has not made a payment for 19 months. Look at the MLS, we are finally starting to get REO’s in mass, showed 14 homes on Saturday, only 2 were older than 16 days on-line. I think the banks are shooting the government the finger since they got the cold shoulder with QE2. Once the effects of this start to take effect we will hear that foreclosures are way up in about a month and then once those people start hitting the streets the economy will slow as their disposable income does to slum lords like me instead of their vices. The government will jump in to save the day, or do I mean delay the inevitable, they will try to pull back again and the same thing will happen. I bet we go through this dance for three cycles before they clear their books in 2014-15.
I have noticed a lot of houses hitting the market in the last week or two in places like Moval. It seems like the smarter banks are trying to get their stock on the market while the getting is good. Low invenetory right now should help them move some stuff assuming they price it right.
I'm wondering what the government will come up with this year to try and contain the crash. I suppose they could bring back the tax credit. But that just brings future sales forward a bit. A low interest government backed mortgage program is probably the best solution. Gov backed 3% interest loans would sure get a lot of people looking at homes. They could also allow recent foreclosurees or short sellers to purchase again as long as they had solid employment and the rest of thier finances were in order. I really don't like to suggest such a thing but they gotta do something.
I agree with golfer_X's last comment here. I'm one of the dopes in 2006 who learned the hard way that it's not always a good time to buy a house. We shorted our home in Chino last year after making 6% interest only mortgage payments on a house that had lost 40% of its value since. It just didn't make sense to continue throwing my money at the bank for a house we were probably never going to have any equity in especially after I lost my job. I started a new job in September and my wife has worked at her current job for 3 years. We have to rent now for 2 years minimum, but it's seems crazy now that for us being "distressed homeowners" that our rent payments are more now than if we had the same size house on a 30 year fixed mortgage. I guess I can see the moral hazard in letting recent short sellers and forecloseree's jump back in the game again, but since when do banks and the government not commit moral hazards?
2 years will fly by William. At least you made the best financial decision possible for you and your family by getting rid of that underwater asset. I don't think prices will do much for a few years and hopefully the rates will remain low. So that when you are ready to buy again you can get in with an affordable payment that allows you to actually build equity as you pay down the balance. And who knows maybe at some point values will start to go up a little bit too.
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