2008, Better Days Ahead?

Well, here we are creeping up on the end of a tough 2007 for the housing market, which leaves us with the question, "What is the outlook for 2008?” Depending on whom you listen to or what you watch, you are probably getting conflicting answers to that question. Fact is no one really knows the exact answer. Most of the media shows a negative outlook for our industry and actually does an excellent job of injecting fear in the consumer. We feel it is a very opportunistic real estate and not quite as bad as what is being portrayed. To help illustrate our thoughts, The Pending Home Sales Index shows that even with lower 2007 sales, it has been the 5th highest year for existing home sales and the median existing home price has only fallen less than 2% off the all time high in 2006.  

We work with buyers and sellers everyday, and spend our time "in the trenches" so to speak. With what we are seeing, we're a little more optimistic for 2008 and the years to come than others that speak publicly about the future of the real estate industry. 

Why? Good question.  

To start, let's look at the rest of the economy. The growth of the US national GDP (Gross Domestic Product), which measures the total market value of all a country's goods & services produced in any particular year, has actually slipped to 2.1% in 2007 from 2.9% in 2006. However, economists project it to improve, 0.6%, to a 2.8% growth rate next year. The Consumer Price Index (CPI), which measures inflation, has remained in line with expectations and is likely to be at 2.8% for 2007, and also in 2008. With that, this number is down from 3.2% in 2006. In addition, the unemployment rate is under 5% and over the last 2 years, 4 million net new jobs have been created. Lastly, in early November, the Fed explained to Congress that they believe economic risks between weak growth & inflation are currently balanced. Sure there are plenty of economic indicators that one can point to which would indicate fear of a recession and a lack of consumer confidence, but isn't it like looking at any situation as if the glass is half empty or half full? In our opinion, fear only conjures up feelings of the possibility of a less than optimistic future, and that is certainly no way to move forward. 

As for the housing market, there is no way to sugar coat a dismal 2007. From a decline in sale prices to the sub prime mortgage mess this summer, the real estate industry has been hit hard. But, if you were to look at a chart of the average home sale price over the past 50 years, we can all agree that it is in an uptrend, right? Same with the stock market, if you look at a chart of the Dow Jones for the past 50 years, it is in a continual uptrend. To tie the two together, even in an uptrend, any market will experience a pullback of some kind from time to time. Look at the stock market in 1929, 1987, and in the early 2000's. Same with the real estate industry, you will find pullbacks throughout its history, most recently in the early 1990's. The common theme is that they eventually bounce back up. This is also the good news; we are due for a bounce back!  

Many prospective buyers have held off on buying because of the mortgage mess. The release of this pent-up demand combined with safer mortgage products, equal a recovery of home sales in '08. Consumer confidence will also rise knowing that conventional mortgages still show low interest rates, the availability of jumbo mortgages (loans over $417,000) has improved, and the reemergence of safer FHA loans in replacing the sub prime mortgages of years past for low to moderate income buyers. Existing home sales are expected to rise by 200,000 in 2008 from the 5.67 million projections in '07. Also, all though inventory of homes currently on the market is at an all time high, most of them are homes that have been on the market for several months due to the lack of sales activity and not due to higher than normal new listings. As demand starts to increase, this will begin to even out; thus reversing the severity of the downward pressure of home prices. Another fact to keep in mind about the high inventory is that many of these sellers will also become buyers, which will create a wash from a supply & demand point. This saturation of available homes creates choices, and the American consumer loves choices!  

The important concept to realize is the real estate market of annual double digit appreciation rates was outside the norm, and could only go on for so long. We're now experiencing a correction to a more conventional real estate market that will continue to be opportunistic for both buyers and sellers. A period of change is always followed by a period of fear of the unknown, anxiety, and even confusion. The bottom line is that, although some of the events that have happened this year were shocking & alarming, they happened for a reason and the industry is now correcting them. This can only be a good thing and, as always when we learn from our falling outs, lead us to believe that there will be better days ahead in the near future. 

By Nicholas L. Kellar
Please contact any one of us if you have any specific questions and/or concerns. Thanks for reading and we look forward to hearing from you!
 

Alternative to Foreclosure...Short Sales

You are probably aware of the increase in potential foreclosed properties across the country due to the number of “bad” loans that had been written over the course of the last few years. The foreclosure process is set in motion after becoming delinquent on 3-6 months of mortgage payments. At this point, if the loan is not brought current during the Reinstatement Period, in which the borrower still has the opportunity to avoid foreclosure, a sale date is then set. On this date, if the loan is still not brought up to date, the home will then be auctioned off to the highest bidder and the borrower is now going to be “scarred” with a foreclosure on their credit report, potentially affecting one’s credit up to 280 pts, which can remain with them for at least 7 years. 

Recently, the US government has unveiled a plan that offers a 5 year rate freeze to those borrowers who qualify to help curb the nation’s foreclosure problem. In order to qualify, a homeowner must be considered a credit risk and unable to keep up with their payments once their interest rate adjusted. In addition, it is for sub prime mortgage borrowers who took out their loans during January 1, 2005 – July 31, 2007 and are expecting a rate adjustment in the next 2.5 years. This will certainly offer relief to those homeowners, but what about those who don’t qualify and are still in danger of losing their homes via foreclosure? 

Short sales are an alternative to going through the foreclosure process, and can be a win-win situation for both the lender and the homeowner. Simply put, a short sale is when a lender is willing to accept less than what is owed on the home. This can be an acceptable scenario for the lender, over foreclosure, because it saves them the cost & time spent on the actual foreclosure process. Although they are still taking a loss, in some cases, it is still less than adding that same loss to costs associated with foreclosing. Also, a bank is not interested in owning property; especially in a depreciating market. They work with money and would prefer money now then the possibility of less money later. 

For the homeowner, a short sale represents the opportunity to potentially rinse your hands clean from the debt owed on the home and move forward with minimal credit damage many times just between 80-100 pts. Obviously, this option does not present itself without some possible negative effects on the borrower too. For one, the borrower could be subject to a deficiency judgment for difference between the loan amount and the amount the short sale was for. This means you are still obligated to pay back the amount shorted to the lender. Another potential negative impact for the homeowner is that the lender could issue a 1099 for the amount shorted which would cause the homeowner to pay taxes on that amount. Ultimately, it is up to the lender to whether or not they will pursue the deficiency judgment and hold the borrower responsible for the loss. A Realtor, such as any of us with The Campbell & Kellar Group, can help you with this process from start to finish. In addition, it is imperative that if you feel you are in a prospective short sale/pre-foreclosure situation, not only do you speak contact any of us, but also obtain legal advice from a real estate attorney and consult with an accountant to discuss any possible tax consequences. 

We are very empathetic towards anyone experiencing financial hardship and having trouble keeping up with their mortgage. That’s why you can contact us, with confidence, knowing that we are more than happy to meet with you privately to discuss your specific situation and see how we can help you! If you have any questions, concerns, and/or would like to meet with us, please don’t hesitate to contact us anytime. Thanks for your time and for visiting the site! 

It's our job to know EVERYTHING about real estate! Ask us anything. There are no dumb questions! It's FREE, and we promise to get back to you quickly...