I attended an eye opening seminar this past week. The speaker was Dave Liniger, chairman and founder of RE/MAX International. I found it extremely interesting to listen to the insights and opinions of this man. You may have you own opinion of him (his brashness is likely to draw an opinion or two) or possibly you’ve never heard his name, but he started and currently runs the top rated (by Entrepreneur Magazine) real estate franchise in the world and has been summoned for advice on the housing markets by members of Congress and organizations such as NAR. So when he spoke, I listened intently.
To be blunt, a lot of the information about the near future of the housing market was sobering. I have seen some posts here on AR that project continued hard times for real estate, but I have also seen many posts (and written a couple myself) that were more upbeat or pointing to signs of improvement. I’m not sure whether it was Dave’s no-nonsense style or just the volume of supporting data, but I left the seminar with a distinct sense that any recent improvements in home prices and sales could just be a calming before the real storm begins. Here are some key reasons for that outlook.
- Unemployment is forecast by the Federal Reserve and by NAR to average just above 9.5% through 2010. The Fed further predicts that it will remain above 8.0% for nearly all of 2011. This alone makes me wonder how NAR’s prediction of increasing homes sales and prices for 2010 could hold true.
- Another large round of mortgage resets is just beginning and will grow through 2010 and 2011. For those who don’t know, a mortgage reset is when an initial fixed rate period expires and the interest rate adjusts to reflect current market conditions and other terms of the reset. In most current cases, these initial fixed rates were very low and the resulting reset rate is substantially higher; high enough that many of these people will no longer be able to afford their mortgage payments. For the most part we have made just it through the first wave of resets known as the “sub-prime mortgage crisis”. I say made it through, but look at the number of foreclosures and short sales left in the wake. Beginning at the end of this year, a second and equally sizeable wave is coming in the form of expiring option ARMs (see graph below).
- Both of the above points result in the next predictions related to foreclosures. Foreclosure sales are currently at a record annual rate of just under 1.8 million units and are forecast to increase to about 1.9 million units by the middle of 2010 before declining to 1.1 million units in mid-2011. For comparison, foreclosure sales ran at an annual rate of about 0.5 million for much of 2005 through 2007.
If you were like me, you probably looked at some recent positive signs in your local housing market and thought just maybe we were turning the corner. By taking a hard look at some data like that given above, you really have to consider that any recent uptick is just a smooth spot in the bumpy road that lies ahead. The good news is that if you know what lies ahead you can prepare and actually prosper as a result.
Contact Scott Loper, Associate Broker, Realtor®, RE/MAX Realty Group at 215-513-1333 for help buying or selling a home in Lansdale, Harleysville, Hatfield, Souderton, Skippack, Collegeville, North Wales and the surrounding areas of Montgomery County Pennsylvania. To Search for Homes For Sale in Montgomery County Click Here.
Copyright © 2009, The Scott Loper Team, All rights reserved. Market Outlook: The Calm Before the Storm.
The Scott Loper Team
Scott Loper - Associate Broker
Lisa Loper - Sales Associate
RE/MAX Realty Group
439 Main Street
Harleysville, PA 19438
Ph: 215-256-1200 x-213
Sopering news. We best not ignore it. I hve never had an interest in listing foreclosures, but wish I had jumped in a few years ago!
Verlyn
Thanks, Scott. There is so much data floating that we've tried to avoid ANY forecasting based on "blips"- and I agree- there is no certainty in a few months worth of an upswing (however minor) until the unemployment rate shows us something positive. The velocity of bpo requests coming in (and, in pulling public records, the # of comps- NOT SUBJECT PROPERTY- showing a homeowner in arrears) is quite sobering.
Veryl,
One of the main points that I took from the seminar is that the need for help with foreclosures and short sales is not going to dry up anytime soon. That business will be there in force quite a while longer for those who have or seek the knowledge, qualifications, experience, etc to handle it.
Thanks for the comment.
- Scott
Good Information and useful chart. I agree 100% this is our short term (3-5 years) future
Tomorrows news should be interesting. We had 9 bank failures this weekend, and CIT filed bankruptcy. It is the 5th largest bankruptcy in US history, and are a major lender to small businesses. Wall Street should be interesting tomorrow.