« AIA California Council issues a working definition of "Integrated Project Delivery" | Main | Role of trade unions still misunderstood by general public »

10 Reasons Housing Will Begin Its Recovery in 2008

December 21, 2007  |  from Construction Jobs Blog

On October 31st, the Laguna Niguel Real Estate Blog posted a list of 10 Reasons the Housing Market Will Begin to Recover in 2008.  The list was originally in an email sent by Countrywide lender Kevin Budde.  After more than a month and a half, I decided to go back and see if any progress has been made.  Here is the list (the bold sections are from Mr. Budde, and the italics are mine):

“1. The Federal Open Market Committee (FOMC) Will Continue to Lower Interest Rates”
The Fed did cut rates again this month, but it remains to be seen if this will stimulate the economy enough to (I) avoid a recession, and (II) keep unemployment low.

“2. The Economy is Creating Jobs and Unemployment is Low”
Unemployment has held steady at 4.7% for the past three months.  On the year, unemployment has only increased slightly.  The labor market has softened, however, and unemployment could increase in 2008.

“3. Lenders are Helping Homeowners with Loan Modifications on ARM Resets”
While this may be true, delinquency (default) rates have skyrocketed over the course of the year, and continue to rise.  Experts predict them to continue rising through next summer at least.  Recently proposed regulations, along with the proposed freeze in initial teaser rates, could help combat the rising delinquency rates.

“4. Subprime ARM Resets Peak in 1st Quarter 2008 with Minimum Resets by Year-End”
See above:  many experts expect delinquency rates to peak in the summer, rather than the first quarter, but most agree that by the end of 2008 rates will be falling.  Mr. Budde is correct in pointing out that with default rates on the downswing, lender and consumer confidence will grow, and loans should increase in availability.

“5. Home Builders are Dumping Standing Inventory to Remove Inventory off the Books by Year-End”
Homebuilders have not taken care of the inventory problem.  Recent reports suggest that homebuilders are reigning in their price cuts and other incentives for decreasing inventory, meaning the glut of unsold homes may be around for a while.

“6. Sellers of Existing Homes Will Take Their Homes Off the Market at Year-End that Don’t Need to be Sold”
Winter is traditionally the slowest season for existing home sales, and it is not surprising that homes would be taken off the market.  I think it is likely that we will not have an accurate picture of 2008’s home inventory, both existing and new, until a few months into the New Year.

“7. Credit Markets for Jumbo Financing are Opening Up”
Unfortunately, jumbo loans are still hard to secure, and more expensive than their conforming cousins.  The good news is that while jumbo financing has not really opened up, it has not gotten any worse in the past month or two.

“8. Fires in So. California Will Create Construction Jobs and Help Supporting Industries”
This is absolutely true, and the unfortunate disaster in Southern California will end up helping one of the states hardest hid by the housing downturn.  But, on a national level, the fires have not and will not have a noticable effect.

“9. Real Estate Investors are Stepping Up and Making Offers”
Many investors have taken advantage of lower prices and bank auctions.  Still, many others are still on the sidelines because they believe home prices have not hit bottom.  An interesting trend to keep an eye on is the increase in foreign investors.  A recent New York Times article reported on the notable increase in European investors buying properties in the Big Apple.  There is no reason foreign investment should only be limited to New York, and the exchange rate between the U.S. dollar and European currencies will continue to stimulate foreign investment in American real estate.

“10. Buyer Sentiment of Those Waiting Will Change as Foreclosure Reporting Lessens”
See above:  both buyer and seller confidence should see a jump as foreclosures are brought under control.  Unfortunately, delinquency rates continue to climb, and the subprime meltdown continues to make headlines across the nation.  It is uncertain whether there will be enough time in 2008 for buyer sentiment to recover after foreclosures peak.

After about two months, it appears that little noteworthy progress has been made.  While a full recovery next year is unfeasible, multiple indicators do suggest that the housing market will begin to recover by the end of 2008.

Filed: Industry-Outlook