Real Estate Outlook: Positives Taking Shape
If you're looking at housing statistics over the past quarter or year, there's no question you're going to come up with a lot of negatives. But if you look ahead -- there definitely are some positives taking shape. On the negative side, we've got a bumper crop: The National Association of Realtors reported last week that median home prices in the fourth quarter of 2007 fell in 77 of 150 major markets compared with year-earlier numbers. And the median price of an existing home nationwide dropped by 5.8 percent. On top of that, total sales were down in the fourth quarter by 8 and a half percent from the previous quarter and were 21 percent below where they were in the fourth quarter of 2006. I've got one word for those numbers: Ouch! They're pretty sobering. But let me ask this: Is anyone really surprised that after the biggest run-up of prices in American history and six years of record-breaking sales that the correction phase following the boom cycle has been tough? Even in the face of all this, roughly half of the 150 major markets -- 73 of them, spread from Yakima, Washington to Binghamton, New York -- saw median price GAINS last year during one of the worst real estate environments in a century. Now let's turn to market developments still ahead: No one is predicting any quick turnarounds or sudden bursts in sales, but think about these facts: - Thirty-year mortgage rates continue to be in the mid to upper 5 percent range -- among the lowest in half a century. If they stay low, most economists agree they will stimulate home sales.
- Federal Reserve chairman Ben Bernanke told Congress last week that he is committed to lowering short-term rates even further to help stimulate the economy -- and hinted that the Fed could cut rates another half point in mid March.
- The new, higher mortgage maximums for Fannie Mae, Freddie Mac and FHA will kick in by mid-March and should help thousands of first-time buyers in high-cost markets like California and the Northeast and ultimately help clear out some of the unsold inventory clogging those areas.
- Combine low-cost money with sharply lower prices and at some point, you hit bottom -- flatten out -- and sales begin to pick up.
Downcycles aren't forever, nor are upcycles. Here at Realty Times we think in a slowly expanding number of areas as the year proceeds, you'll see the arrows start pointing up again.
Written by Kenneth R. Harney
February 21, 2008
GOOD NEWS,
MARKET GETTING ACTIVE -- CONTACT US
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What is interesting to me in regards to Real Estate statistics is that the industry only goes back may be 1 or 2 years. The real truth lies in going back further than that, and you will actually see that things are not all that negative. Let's take a look back to 2002:
1. From 2002 to 2006 Total Existing Homes sales grew by 15% going from 5,631,000 to 6,478,000 in 2006. Of that Single Family Homes grew 14% from 4,974,000 to 5,677,000 (this was a drop of 8% from the year prior, but still substantially higher than 4 years prior). (Source: NAR)
2. New Home sales grew from 667,000 in 1995 to 1,051,000 in 2006 or 58% over the last 11 years. (Source: US Census)
3. Are Mortgage rates at an all-time low? Most certainly, yes. According to FREDDIE MAC's weekly average 30-year Fixed loan going back to 1990, interest rates have been at their lowest in 2007 through the first week in February of this year. The last week of January 1990, 30-Year Fixed loans averaged 10%. 5%-6% are historical over the last 18 years.
So why all the problems and talk of negatives? I personally am trying to figure out why anyone would think that prices could have ever sustain in any industry 20% gains each year. The two real issues that halted the Real Estate markets were unethical lending practices and unrealistic price expectations. Both aspects took buyers riht out of the Real Estate arena. Many markets are finding prices "reset" and come down to 2002 and 2003 ranges which are more reasonable and affordable. Will Real Estate ever see booms of 20% appreciation again? Probably not. And those that are looking for it will be very disappointed for many years to come.