Have we hit bottom?

Has the real estate market nationwide hit bottom?  I hear Realtors all the time say that business is picking up for them.  In addition, I was looking through the New York Times Real Estate section, and not one article in the  18+ articles posted was negative.  Not one article was telling of how we are all doomed to suffer endless real estate woes for the next million years or that prices have dropped again for the umpteenth time.

The National Association of Realtors is predicting a “notable improvement” in the real estate market in the second half of 2008. Lawrence Yun, cheif economist for the NAR, said “Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure,” he said.  “We’re looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets.  The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.”

Credit should be more available, but is a loan on a home easy to get right now?  I’m in the process of a refinance; I qualify full doc now with FHA, whereas two years ago I did not.  This translates to a savings of over 2% or a few hundred dollars a month.  However I’m having a problem with the appraisal.  It came back $1000 short of where it needs to be for the 97% LTV, and I’m not taking out any cash.  The big problem is, I put $15,000 down when I bought it two years ago and put $10,000 into it since.  We thought we were getting a deal at the time, guess not.

Back to the point, I’ll post more details on my refi when it either completely falls through of closes.

NAR is estimating fourth quarter sales to be up at around 5.9 million, up from 4.9 million in the first quarter.

New home sales and housing starts are expected to fall 25.7% and 26.3% respectively and the new home median price to fall to $238,400 in 2008, but projected to rise 4% in 2009.

The only negative real estate article that I found on USAToday > Real Estate was an article speaking into the market’s decline three months in a row, posted in February.

Have we finally made it to the bottom?  Are we flattening out, officially arriving at the back end of the slump?  Is the worst over?

About this time last year, we were all saying we still needed to see all the foreclosures come through.  At that time, there were still tons of owners still holding on.  Foreclosure rates are high now, up 60% in February compared to February 2007. Foreclosure rates are down in February 2008, however, from January 2008 4%, but this is just a seasonal decline according to Rick Sharga, a RealtyTrac spokesman as quoted on CNNMoney.com.  I expect the foreclosure rates to stay fairly high for a while, but has the flushing began? Will the foreclosure rate plateau and start to gradually fall?  I think it is too early to tell, but I think we’ll know in a matter of months.

I was telling my dad the other day that we won’t wake up one day, look out the window and notice the housing downturn is over.  It may be years before we’ll stroll into the office and realize that things have been going pretty good for quite a while.  These things take lots of time to work themselves out and I’m looking for things to stabilize in the next year and in 2009 to be able to start seeing some noticeable real estate product sales.  My company has a project in the Keys that has 2 homes sold in the last 60 days and 4 other deals in the works.  The difference in the buyer now compared to a couple of years ago is that these are end-user/lifestyle buyers.  They are not buying to rent, hold-then-flip, etc.  They want to use their new homes.  Another distinguishing difference is that we have new completed product.  The community is under construction, but the first phase (13 homes) have just been completed and all the amenities are already in place, waiting to be used.  If there was nothing there, I feel confident we would have no sales to speak of.

I think it is safe to say, we’re getting through this; the market downturn, that is.  And, if you have money to spend, you better be buying right now.  In five years, you’ll wish you had.  Me?  I’m working on it.  Being in the real estate business, I’m not exactly loaded right now, but I’ve got a plan that will add more real estate to my portfolio in the next two years.  Plus, I’m fortunate to not be holding multiple homes purchased two and three years ago.  I know many who are, and I can’t say that I feel your pain, but I know you’re hurting right now.  Hang in there, we’re almost done.

One thought on “Have we hit bottom?

  1. I have spent a fair bit of my career on workouts of distressed real estate going back to the S&L/RTC era. I used to give a speech on the sequence of events that must pass for a market to recover, including a series of false bottoms. The duration of these events, that is, the shape of the recovery curve, is different in each market and submarket, but they contain the same sequential components.

    The depth of this market downturn was caused, in my view, by the creation of mortgage products intended to socially engineer an expansion of home ownership to targeted groups by politicions. The target of a 6% increase in home ownership was achieved by lending to people clearly not qualified to borrow. Those people are now called victims.

    When Congress allowed this “social engineering” by allowing Freddie and Fannie to enter the sub-prime lending market, those entities gave placid approval to all lenders to originate these loans knowing that they could be sold to either these agencies or the thriving securitization market incented by huge fees on Wall Street. If they had stayed out of that market the lead lenders there (Countrywide, RFC,B of A, etc.) would have eventually lost a great deal of money primarily for bondholders, the rating agencies would have tightened up and that would have been the natural end to it. In the end, billions of dollars of loans were being made which did not pass the test of good old common sense. This only happened because no one organization had cradle-to-grave responsibility for these loans. As Mark Twain once said, “the interesting thing about common sense is that it isn’t all that common.”

    The net effect of these circumstances is that the normal market cycle of say 6 or so years for real estate was extended by an additional 6 years. The increase in demand was fueled by an increase in the number of homeowners and furthered by increasing values that caused all of the rest of us to participate. We upgraded our homes, borrowed more, invested speculatively and gazed often at the increased net worth on our financial statements. Some of these funds found their way into the stock market and exasperated values there as well.

    Here is the bottom line: all of the appreciated value in your home, investment real estate or stock portfolios in the last six years were false value. If you were smart (spelled “lucky”) enough to exit, you were able to take advantage of that false market. The rest of us need to change our expectations to the fact that the sustainable recovery levels are not the peak of the market, but rather that level before Congress got involved 6 or 7 years ago.

    That said, the market has over corrected. I do expect “recovery” by the end of this year, but only to the levels which are sustainable.


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